Supplemental Budgets, Bonding and Tax Targets

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With the passage of policy committee deadlines, the Legislature has shifted its attention to supplemental budgets, bonding and tax targets. Finance bills have to be out of Senate Finance and House Ways and Means committees by April 21. In addition, lawmakers have six weeks left to reach compromises on transportation and taxes.

Budget Surplus Spending

Democrats in the Minnesota Senate released their General Fund budget targets this week for spending the State’s $900 million surplus. Not surprisingly, the plan contrasts sharply with the one House Republicans announced last week.

Senate Majority Leader Tom Bakk (DFL-Cook) said that they would spend the $900 million surplus among their spending divisions, and reserve some cash in the bonding bill. Bakk said the Senate plan includes some one-time spending to limit the impact on future budgets.

House Republicans rolled out a supplemental budget blueprint Thursday that proposes no net increase in State spending. The plan would divide the State’s $900 million budget surplus between the two leftover items from last session: transportation funding and tax cuts.

During a Wednesday press conference with Senate leadership, Majority Leader Bakk explained that the Senate Democrat’s budget is all inclusive, but a little incomplete. He highlighted three components – bonding, transportation, and family leave. Senate leadership said Pre-K will also be a part of the bill, something Gov. Mark Dayton pushed hard for last session. Bakk noted that their spending and the Governor’s are similar.

Senate Finance Chair Richard Cohen (DFL-St. Paul) said the budget forecast shows a leveling off. He said they won’t base the budget on the current forecast since there appears to be a downturn. New Senate Finance Equity Subcommittee Chair Jeff Hayden (DFL-Minneapolis) said that there is an absolute commitment from the Governor and Senate DFL on funding the equity issue.

Senate Tax Chair Rod Skoe (DFL-Clearbrook) noted that after the forecast, the tax bill was re-scored. He said they will try to fit some new priorities in the tax bill, including the disparity issue.

When asked about the Senate and House budget targets being far apart during the question and answer session, Bakk said he told the House Speaker he has to figure out if he wants a tax bill or a transportation bill; there is not enough money for both. He added that Speaker Daudt and Minority Leader Paul Thissen (DFL-Minneapolis) need to work together to get the votes to spend some money.

Bakk said he left $111 million unspent, and can use some of that for bonding. He expects the bonding proposal to be close to the $1.4 billion that the Governor wants, vs. the House $600 million proposal.

They hope to have the Senate Finance bill on the floor by Thursday of next week before the Passover break.

Legacy Funding

House Legacy Funding Finance Committee Chair Rep. Dean Urdahl (R-Grove City) called its first meeting of 2016 on Monday.

Urdahl told the committee that the only bill on the agenda, which was laid over and has no Senate companion – was “vehicle” legislation that would take its final form at the next meeting. But he then outlined the challenges facing the four funds created when voters approved the Legacy Amendment in 2008. Those funds are: Clean Water Fund, Arts and Cultural Heritage Fund, Outdoor Heritage, and Parks and Trails Fund.

Urdahl said that because sales tax revenue did not meet projections, we have a little bit of a deficit. Because the February forecast showed lower-than-expected revenues, three of the four Legacy Funds face a projected deficit. Only the Parks and Trails Fund shows a positive balance ($156,000). However, Urdahl said steps have already been taken to address these shortfalls.

While the contents of the Legacy bill are expected to be much different when the committee next takes up the bill, Urdahl said the language it currently contains may begin to resolve an ongoing question that must be answered each time funds are appropriated.

The law requires legacy dollars to “supplement” rather than “supplant” existing expenditures. The legislation would require those seeking money from the Parks and Trails or the Arts and Cultural Heritage funds to disclose whether a given program or project has been funded in the past (since 2006) and, if so, how it was funded. The other two funds were not included because it’s believed they are overseen by advisory boards that should already be considering this question.

Urdahl said this information would help legislators determine whether future Legacy appropriations would be going to efforts that had previously been funded.

Transportation Funding

The chair of the House Transportation Policy and Finance Committee Tim Kelly (R-Red Wing) expressed frustration with Gov. Mark Dayton’s supplemental transportation spending requests on Wednesday, dismissing the proposal as “not a serious plan.” He expressed annoyance at its similarity to the Administration’s original 2015 budget recommendations.

The Governor is calling for additional funds in Fiscal Year 2017 for highway construction, at-grade rail crossing improvements, more State rail inspectors, and registration and commercial licensing of drones. His plan also includes a proposed increase in the motor vehicle fuels tax and vehicle registration fee to fund road and bridge projects, and an expanded metro area sales tax dedicated to Twin Cities transitway expansion.

Legislative leaders on both sides of the aisle say striking a transportation funding deal remains a high priority this session, but little progress has been made in bridging the gap between the House and Senate plans.

The House Republican plan would raise an additional $7 billion for roads and bridges over the next decade, in part by redirecting motor vehicle-related tax revenue away from the State’s General Fund, identifying inefficiencies in the MnDOT budget, and utilizing some of the State’s projected budget surplus.

Meanwhile, the Senate DFL package proposes to raise roughly $11 billion for roads, bridges and transit by instituting a new gas tax and expanding a metro area transit-dedicated sales tax from one-quarter to three-quarters of a cent.

Real ID

In a report released Thursday, the Department of Public Safety estimated that it could cost up to $5 million to implement Real ID (security enhanced driver’s licenses) starting this fall.

The Minnesota Legislature ordered the study as it tries to respond to a deadline imposed by the federal government aimed at making identification cards harder to counterfeit. Unless Minnesota makes the change in the next couple of years, Minnesota travelers would have a tougher time boarding flights or getting on military bases.

Legislators are considering bills to usher in Real ID in October, so the cards that require more proof of identity and take more time to process can become uniform in time to meet federal enforcement timelines.

Minnesota faces a 2018 deadline to comply, but the State has applied for a waiver that could extend the deadline until 2020.

Gov. Mark Dayton said he is hopeful that the U.S. Department of Homeland Security will give the State some leeway, and is unsure whether he and lawmakers can get it resolved this year. House Speaker Kurt Daudt (R-Crown) said the Legislature still has time to tackle the topic during this legislative session and bring certainty to the traveling public.

Sen. Warren Limmer (R-Maple Grove) has been leery of the Real ID over worries about securing sensitive data. After the report’s release, he said there is ample time to think it through.

First-time applicants for a Real ID must present a valid passport, a certified birth certificate, a certificate of citizenship, or another recognized primary document. The corresponding documents or digital images are kept on file for seven to 10 years. Lawmakers said they will consider rules for data handling to safeguard applicant information.

Fantasy Sports

The Minnesota House voted Monday on legislation to legalize the rapidly growing recreational activity known as fantasy sports.

Rep. Tim Sanders (R-Blaine) said his bill would clarify that the games are legal. He insists that fantasy sports are not gambling. He said the competitions are based on performances of real-life athletes.

The bill moved quickly through the committee process with little opposition. The group Citizens Against Gambling Expansion has spoken against the legislation, arguing that daily fantasy sports games are a form of illegal online wagering.

The Sanders bill would codify the experience in State statute and provide a definition for fantasy sports with an entry fee, noting that it is not a lottery or other form of betting.

The House passed the bill 100-28 Monday. It now moves to the Senate where Sen. Sandy Pappas (DFL-St. Paul) is the sponsor. “The purpose of the bill is to take something that is so important to many Minnesotans — daily weekly, seasonal fantasy sports — and to codify it in statute that it is legal, that it is fun and helps build community,” Sanders said in a press conference earlier in the day.

Sanders said the consumer of fantasy sports will not be impacted in their game-play, but operators will face stricter regulations, describing it as one of the strongest bills in the country.

The bill, as successfully amended by Sanders on the House Floor, would provide many consumer protections. Among them, the operator must implement reasonable procedures to prevent a game operator from being a participant in a game that they offer and verify that a player is at least 18 years of age.

Rep. Joe Atkins (DFL-Inver Grove Heights) successfully added an amendment that would require a game operator to have an independent audit with the results submitted to the Commissioner of Public Safety by March 15 of each year.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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