As a result of November's elections, there is no longer one party control of Minnesota government. When the 89th session of the Minnesota Legislature convenes on January 6, 2015, the new House Republican majority, along with the DFL-led Senate and DFL Governor Mark Dayton, will start working to find common ground on a 2016-17 biennial budget, transportation funding, tax reform and a bonding bill. A projected budget surplus should assist in addressing these issues. Other items are expected to be considered as well, including environmental permitting, reforms to MNSure and the Metropolitan Council, revisions to the state's data practices law, restricting the use of license plate readers, and the Sunday sale of alcohol.
Legislators will conduct their work in and around a three-year, $272 million comprehensive restoration of the Capitol building and surrounding Capitol complex infrastructure. Although the House and Senate Chambers are open, two-thirds of the Capitol is completely closed, including the Rotunda and East Wing. Senators and Senate staff are doubling up in remaining Capitol offices, and events and rallies normally held in the Capitol will be taken outside or off-site. Once the Legislature adjourns in late May, the entire Capitol will be closed through the 2016 session with the exception of the House Chamber, which will remain open for floor sessions of the Minnesota House.
Budget Forecast
In November, Minnesota Management and Budget (MMB) released its most recent budget and economic forecast showing an improvement in Minnesota's budget outlook from previous estimates. For FY 2014-15, the current biennium, higher than expected income tax revenue and $249 million in savings from lower than expected health care spending produced a surplus of $556 million. After allocating one-third to the state's budget reserve (as required by state law), a projected surplus of $373 million for the current biennium remains.
MMB projects a $1.037 billion surplus for the FY2016-17 biennium. This amount includes the $373 million surplus from the current biennium which will carry forward into FY 2016-17. MMB projects that while state tax revenues are expected to grow at a moderate rate, forecast spending (based largely on current law and appropriations) will also continue to grow. This projected spending growth is driven primarily by growth in human services spending. The November forecast, while better than previous such forecasts (the last three November forecasts prior to budget-setting sessions called for deficits of $1.1 billion, $6.2 billion and $4.8 billion, respectively) is modest when considering MMB is projecting the state's expenditures for the next biennium to be $41.2 billion. This forecast, for the most part, does not include inflationary adjustments for current expenditures.
Governor Dayton and his staff will use MMB's November forecast to make final decisions on his FY2016-17 budget recommendations. These recommendations will be released to the Legislature and the public on January 27, 2015. In recent weeks, Governor Dayton has indicated that transportation funding, child-care tax credits, broadband expansion for Greater Minnesota and early education scholarships will be among his spending priorities.
In late February, MMB will release its' next budget and economic forecast providing the revenue and expenditure projections the Legislature will use in adopting a budget for the FY 2016-17 biennium. Both House and Senate leadership have indicated a preference to pass federal tax conformity early in session with an estimated cost of approximately $90 million. House leadership has also indicated it will be using some of the additional surplus for additional tax reform.
Transportation
In each of the last two sessions, comprehensive transportation packages, usually involving wholesale fuel or gas tax increases for roads and bridges and metro-wide sales tax increases for transit, have stalled at the Capitol. Governor Dayton and House and Senate leadership have all indicated that transportation funding will be a top priority. However, what the Legislature will actually be able to achieve remains to be seen.
During the campaign, Governor Dayton made clear that he would be proposing a transportation package that would generate close to $6.5 billion in new revenue over the next 10 years and include some sort of sales tax on gasoline. Since the election, key transportation advocates in the DFL-controlled Senate have indicated they will again introduce a comprehensive transportation package which will include a wholesale fuel tax and a metro-wide sales tax for transit. The Republican-controlled House appears less inclined than the DFL-controlled Senate to consider increasing traditional funding sources for transportation and transit such as wholesale fuel, gas and sales taxes. They will focus on road and bridge repair and replacement, especially in Greater Minnesota, where many of their newest members reside.
Key business groups will be urging lawmakers to forgo additional tax increases at this time and instead consider general fund revenue (which is used in more than 30 other states for transportation but not in Minnesota), contracting and other efficiencies at MnDOT, and value capture mechanisms to fund additional transportation improvements. If legislative leadership cannot agree on increasing traditional transportation funding sources, the size and scope of any final transportation package will be limited to the amount of revenue generated from bonding, the general fund and non-traditional funding mechanisms.
Taxes
The Legislature is likely to consider modifying the corporate income tax, research and development tax credits, the estate tax, and property taxes. However, repealing the new taxes passed last biennium will be difficult because of the cost and the new dynamic of divided government.
The business community has identified a reduction in the corporate income tax as a top priority this session. With Minnesota having the third highest corporate income tax rate in the nation, legislators may make changes to reduce the rate. Both leaders from the House and Senate identified the issue as a top priority, so look for extensive debate regarding the proposal throughout session. The estate tax could fall under heavy scrutiny as well. Likely modifications could be centered around the changes made last session to taxable gifts and a 10 percent tax on lifetime gifts of more than $1 million.
The way the state facilitates property tax relief could change with regard to the use of local government aid (LGA) funds and establishing levy limits. Some rural members are also considering a proposal to modify what farm land will be included when calculating an individual's property tax. Other proposals are being considered, such as modifying statute concerning residency and domicile for tax purposes.
Bonding
The Legislature generally focuses on the state's capital investment needs in the second year of the biennium. As in past years, it is expected (but not guaranteed) that the Legislature will pass a small bonding bill to deal with emergency needs and other pressing capital investment matters. However, this year's bonding bill could become much larger should legislative leadership identify it as a source of transportation funding. In this event, the size of this year's bonding package and the amount of bonding proceeds available for other projects next session could be impacted.
MNSure, Health and Human Services
MNSure, the state-run health care exchange, will close its second open enrollment period on February 15, 2015. Private enrollment was lower than projected for the second consecutive year, but unlike the first enrollment period, the program was not marred by customer service issues. Republicans attacked Governor Dayton on MNSure during the 2014 election cycle, intensifying their criticism after one of the largest providers dropped out of the exchange system. The conversation over MNSure and health care spending in general is one of the largest differences between the legislative caucuses. Republicans created a new House committee on aging and long-term care policy. This move is a sign that addressing long-term care issues will be a top priority of the House Republicans. Legislators on all sides agree something needs to be done as more Minnesotans prepare to retire.
Economic Development and Jobs
Last session focused heavily on unemployment, but in 2015 the legislature is likely to focus on job creation and wage growth issues. With a 3.7 percent unemployment rate, Minnesota now ranks fifth lowest in unemployment across the country. However, there has been slow growth in productivity nationwide. Despite the national trends, Minnesota has seen increased job growth, though wages have remained stagnant. After an increase in Minnesota's minimum wage, the Legislature may consider again the scheduled automatic increases to the minimum wage.
Data Practices
The Legislative Commission on Data Practices was established last session to study issues relating to government data practices and individuals' personal data privacy rights and to review legislative proposals affecting data practices, data security and personal data privacy. Over the interim, the commission has met several times, examining a range of issues from license plate readers and drones to law enforcement's use of body cameras and the state's practices regarding the bulk sales of data.
The commission has forwarded to the Legislature recommendations restricting the use of license plate readers. The commission will continue to meet, and it is expected that it will continue reviewing issues surrounding the use of body cameras by law enforcement and the classification of other types of surveillance data.
Additional Issues
Other issues the Legislature is expected to consider in 2015 include:
Sunday Sales — Sunday sales of alcohol are allowed in 38 other states, including all of the states adjoining Minnesota. In a recent poll, 62 percent of Minnesotans favor repealing the Sunday ban.
Met Council — Over the last few months, a number of counties in the metropolitan area have expressed concern over the Met Council's long-term overall development plan, which includes transportation, housing development and parks. These counties have announced a lobbying effort to change the makeup of the transportation board to include more representatives from their counties and more elected officials. There will also be an effort to revisit whether the Met Council itself should be elected or appointed.
Renewable Energy Standard — Currently, at least 15 percent of energy sold in Minnesota must come from renewable sources. A coalition of environmentalists and other groups will be mounting an effort to increase that standard to 40 percent by 2030.
Rail Congestion and Safety — Increased rail freight in Minnesota has led to railway congestion that slows trains on the tracks at intersections. The traffic has raised municipal concerns about emergency and other vehicles stuck at rail crossings. The Legislature is expected to address the problem of railway capacity. Governor Dayton has already met with rail representatives and may include solutions as part of his transportation package.
Medical Marijuana — State-selected medical marijuana providers have until July 1, 2015, to finalize patient registration, distribution systems and growing facilities. However, multiple rural legislators have stated concern with hundreds of miles separating dispensaries in greater Minnesota. With a renewed focus on greater Minnesota, the legislature may look to adding more facilities to reduce travel times for rural patients. Governor Dayton has also expressed interest in expanding the list of qualifying conditions for access to the drug.
