Minnesota Legislative Update: 2016 Legislative Session Preview 02/26/2016

The second year of the 89th Session of the Minnesota Legislature convenes on March 8, 2016. This year’s session is unusually late and will last an atypically short 11 weeks.

The February Forecast released today projects a $900 million surplus, $300 million lower than the $1.2 billion forecast last November. Legislative leaders and Governor Mark Dayton have been taking positions regarding use of surplus funds, which were expected to be higher. Much of the surplus could be consumed by the tax and transportation bills, which were unresolved during the 2015 legislative session. The bills each begin the session already in conference committee.

The Capitol building is the final year of a three-year restoration. The Capitol is closed except for the House Chamber, which is open only to members and limited members of the public. The new Minnesota Senate Building will serve as a temporary chamber for Senate sessions.

The second year of a biennium tends to be more political, with legislators concerned about the upcoming fall election. The entire legislature will be on the ballot in 2016. With divided government, Democrats are expected to try to win back some seats held by Republican House members to regain control from their minority position. Similarly, Senate Republicans promise to work to unseat Democrats.

House Republicans gained one member in their caucus during a special election earlier this February. As Election Day approaches, two defining factors that will determine the outcome are whether Democrats can appeal to the greater Minnesota citizens who elected Republicans in 2014, and how Presidential turnout will affect legislative contests. Both parties have already raised more money than they did in 2012. Outside groups are already exerting their financial influence as well.

Budget Forecast

Today, the state issued the projected budget forecast for the biennium, which is based on economic trends and their impact on state collections and expenditures. It was announced at $900 million, having dropped from a $1.2 billion projection in November. The Department of Revenue attributed slow growth to a weakened U.S. economic outlook and decreased spending. The surplus is smaller than anticipated by legislative leaders, who will likely ease back on major spending plans. The decrease in the projected surplus may put one-time funding opportunities, as opposed to increase for ongoing spending, in a better position at the legislature. Despite the smaller surplus and slower economic growth, Minnesota’s budget outlook is stable with positive balances projected into the next biennium.

Taxes

The omnibus tax bill was left unresolved last May, and despite passing a federal conformity bill early in the session, no other tax bills were passed in 2015. Legislative leaders are expected to start the session by starting deliberations in conference committee. With the release of the February budget forecast, both majorities may look to derive an altered tax package based on the new forecast.

The Senate DFL plan would cost $460 million, with $93 million in property tax relief, expansion of the K-12 education and veteran jobs’ credits, creation of a refundable tax credit for contributions to Minnesota’s college savings plan, and $225 million to pay back accounting shifts that occurred in tougher budget years. DFL Senate Leader Bakk has since announced he will push to increase local government aid and to hold down property tax relief in 2016.

The House Republican proposal calls for a $2 billion tax cut plan with $539 million in one-time personal income tax exemptions, a phase-out of the statewide business property tax, tax deductions for Social Security income, military retirement pay, college loans and farm property. Finally, it included an 85 percent million cut in local government aid to Minneapolis, St. Paul and Duluth. Republicans in the House have prioritized tax relief.

Transportation

Although the legislature was unable to pass a major funding bill in 2015, a “lights on” bill was passed before adjournment. House Republicans and Senate DFLers each have large proposals on the table, and leaders on both sides agree a long-term transportation funding package should pass this session.

At the end of the 2015 session, Republican House leadership called for a bill that raised $7 billion in new funding in the next 10 years, with no tax increase. The bill would instead reallocate general fund revenue from current sales tax collected on auto parts, leased motor vehicle and rental vehicles. Speaker Kurt Daudt has said that most of the funding for transportation should come from surplus dollars and through bonding.

The Senate DFL plan generates $11 billion over the next decade through a 6.5 percent wholesale gas tax, an increase in license tab fees and a 0.75 percent sales tax increase in the metro area to support transit. It also calls for $2 billion in trunk highway bonds for roads and bridges across the state. In 2016, DFL Majority Leader Bakk and other Senate leaders say they are determined to include a dedicated revenue source and transit, in a final proposal, which will produce pushback from Republicans.

Bonding

Bonding requests submitted to the Governor’s administration for capital projects totaled $3.7 billion for 2016. These project requests have grown over the past several years and far exceed the Governor’s recommendations of $1.4 billion. Historically, final bonding bills have been under $1 billion. According to Governor Dayton, his recommendations support more than 100 projects spread across the state and will create 39,000 jobs. Within the Governor’s proposal, only 25 percent of all existing project requests would be funded. GOP leaders in the Senate initially called for the Governor’s proposal to be cut in half, while neither the House nor Senate majorities have released their own proposals. Senate Majority Leader Tom Bakk has acknowledged that any bonding package will need broad support, and both Bakk and Speaker Daudt agree that some bonding funds should be allocated to road and bridge construction and maintenance.

Health and Human Services

A report released by the legislative auditor in January showed MNSure enrollment errors cost the state about $200 million in 2015. Many Republicans have raised concerns about MNSure, and there may be calls for reform of the program. The Department of Human Services has acknowledged improvements must be made regarding eligibility determinations. Prior to the audit release, the members of the Health Care Financing Task Force made recommendations to increase the accessibility of health care, delivery design and sustainability, and seamless coverage. These may be key areas of reform that emerge in committees.

Education

Universal preschool funding was supported by the Governor and some DFL members in 2015, but in the absence of any significant budget proposals, may not be increased this year. The Senate Education Committee has been meeting regularly in the interim to take testimony on early learning scholarships, higher education attainment across the state and the World’s Best Workforce legislation. Members of the special session working group to address racial and economic disparities have been taking a close look at how higher education and improvements to funding early childhood education can reduce the educational achievement gap.

Environment

During the 2015 session, chemical regulation issues continued to be an area of concern for many legislators. Some legislators are interested in bringing forth regulatory proposals this session. In the interim, issues of water quality and buffer strips have been prioritized by Governor Dayton after he announced changes in buffer law implementation. Dayton halted actions by the Department of Natural Resources to map private buffer strips as part of the buffer expansion proposal passed in 2015. The Governor will be hosting a Water Quality Summit tomorrow, February 27, 2016, which will frame his specific policy priorities going into the legislative session.

Other Issues

Although there was talk during the interim of a special session, the Governor chose not to call one. The legislature likely address the three issues discussed within three special working groups. Those groups focused on Iron Range Unemployment, Real ID implementation, and economic and racial disparities.

Legislative Retirements

Many retirements have been announced, including several senior House and Senate members. Typically, legislators will announce their retirements in the last few months of session. This year, an unexpected number of retirements have already been announced.

Legislators No Longer Serving:

Sen. Branden Petersen (R-Andover), Resigned October 2015 (Replaced by Sen. Jim Abeler, R)
Rep. David Dill (DFL-Crane Lake), Passed away August 2015 (Replaced by Rep. Rob Ecklund, DFL)
Rep. Ann Lenczewski (DFL-Bloomington), Resigned November 2015 (Replaced by Rep. Chad Anderson, R)
Rep. Ryan Winkler (DFL-Golden Valley), Resigned June 2015 (Replaced by Rep. Peggy Flanagan, DFL)

Legislative Retirements at End of 2016 Session:

Sen. Dave Brown (R-Becker)
Sen. Barb Goodwin (DFL-Columbia Heights)
Sen. Jim Metzen (DFL-South St. Paul)
Sen. Julianne Ortman (R-Chanhassen)
Sen. John Pederson (R-St. Cloud)
Sen. Roger Reinert (DFL-Duluth)
Sen. Bev Scalze (DFL-Little Canada)
Sen. Kathy Sheran (DFL-Mankato)
Sen. Katie Sieben (DFL-Newport)
Sen. Leroy Stumpf (DFL-Plummer)
Sen. Dave Thompson (R-Lakeville)
Rep. Mark Anderson (R-Lake Shore)
Rep. Joe Atkins (DFL-Inver Grove Heights)
Rep. Tim Kelly (R-Red Wing)
Rep. Carly Melin (DFL-Hibbing)
Rep. Kim Norton (DFL-Rochester)
Rep. Tim Sanders (R-Blaine)

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