Minnesota Weekly Legislative Update: An In-Depth Recap of the 2017 Legislative Session

On May 30, three days following the adjournment of the 2017 First Special Session, Governor Mark Dayton signed all budget bills, the tax bill and a bonding bill to conclude the work of the 2017 Minnesota Legislature — almost.

The Governor added a line item veto to Chapter 4, SF1, the Omnibus State Government Finance bill, that canceled the bill’s appropriation for funding the state Legislature. This veto was accompanied by a letter explaining his reasoning for using his line item veto on this provision.

In the veto letter, the Governor expresses disappointment with the budget passed by the Legislature. He states the Legislature will need to agree to certain changes in the budget prior to him calling them back for a Special Session to reinstate the Legislature’s funding.

The Legislative Coordinating Commission is meeting on Friday, June 2, 2017 to discuss hiring an attorney to pursue litigation against the Governor on behalf of the Legislature. It seems likely they will sue the Governor under the Minnesota Constitution’s separation of powers. Litigation would postpone any potential legislative activity until the case is resolved. 

2017 Regular Session

The Governor and Republican legislative leaders made two attempts to finish their work during the Regular Session. Leaders spent the final weeks of the Regular Session negotiating the budget. With less than two weeks until adjournment, and unable to reach agreement with the Governor, the Republican Legislature sent a completed budget and tax bill to the Governor, which he promptly vetoed.

Following the veto of the original budget, negotiations resumed and an agreement was reached on May 22, the final evening of the Regular Session. Before adjourning, the Legislature sent five budget bills to the Governor: Agriculture-Chapter: 88, HF1545; Higher Education-Chapter: 89, SF943; Jobs & Economic Development-Chapter: 94, SF1456; Environment-Chapter: 93, SF844; and Public Safety-Chapter: 95, HF470.

The Governor called a Special Session of the Legislature for May 23 at 12:01 a.m., immediately after the Regular Session adjourned. The Legislature met in Special Session for three days and the remaining budget bills, tax bill and bonding bill were adopted and sent to the Governor.

Budget and Policy Breakdown

The Governor proposed a $45.8 billion biennial budget to the Legislature in January. He focused on tax relief for families, job growth and strong infrastructure investment. The budget also contained environment and education proposals. The Legislature responded and concentrated its budget around tax relief and increases in spending on E.12 education.

The following are highlights of the agreed upon budget bills:

Agriculture Finance Chapter: 88, HF1545

The Omnibus Agriculture Finance bill has traditionally been bi-partisan and it was the first budget bill negotiated between Governor Dayton and the GOP leadership this year. The new law contains a $4.97 million budget increase to the $123 million budget. The increased funding will be used primarily for operations at the Department of Agriculture.

The bill funds research and outreach for science-based best practices and identifies the most beneficial habitat for pollinators.

Funds for noxious weed education and notification were also included. The Department of Agriculture will be responsible for posting a notice on their website as well as alerting media when a noxious weed is confirmed in a county.

Another major policy provision repeals the requirement for licensed commercial pesticide applicators to prove a need for a pesticide, prior to application.

Capital Budget Chapter: 8, HF5

The Capital Budget bill contains almost $1 billion in projects and passed with overwhelming support in both the House and Senate (119-10 and 60-2, respectively). Below are some key provisions:

• University of Minnesota and Minnesota State - $119.9 million and $92.3 million
• Transportation - $254 million
• Met Council - $45 million
• Employment and Economic Development - $101 million
• Human Services - $100 million ($70 million for St. Peter Security Hospital)

E-12 Finance Special Session Chapter: 5, HF2

The House, Senate and Governor Dayton had major differences over numerous education topics this legislative session. This includes disagreements over the education general funding formula, teacher licensure, universal pre-kindergarten (UPK) and early education scholarships. The final Education Finance bill passed during the Special Session and included a 3.5 percent general fund base increase, or $483 million, in the next biennium. The majority of the new funding goes towards the General Education Basic Formula fund, which will see a 2 percent per year increase.

Early education was the most contentious issue to be resolved in the E-12 bill. The two main points of contention were funding for UPK and early education scholarships. Governor Dayton was a strong proponent of expanding the $25 million UPK “pilot” program approved in the 2016 session. House Republicans favored a more targeted approach with early education funding geared towards scholarships for Minnesota’s most vulnerable three- and four-year-olds. They reached a compromise in the form of a new funding stream called School Readiness Plus and continued funding for scholarships and UPK. School Readiness Plus allows school districts to receive funds that are targeted toward students with the greatest needs. 

Environment Finance Chapter: 93, SF844

The omnibus environment and natural resource budget bill was a practical compromise. The original bill that was vetoed by the Governor cut funding by $40 million. SF844 increased funding by $8 million.

The first budget sent to Governor Dayton included a two-year delay to buffer implementation. SF844 does not include these delays, and buffers or other water quality practices must be in place by November 1, 2017 on public waters and November 1, 2018 on ditches. Landowners can apply for an extension if they file a compliance plan.

Health and Human Services Finance Special Session Chapter: 6, SF 2

The omnibus HHS bill spends more than $15 billion per year, relying heavily on the Health Care Access fund. Although the Governor did sign this bill on May 30, 2017, he expressed concern that many of his priorities weren’t funded — such as dental care, community health centers, early childhood, homecare workers, and child protection. Some also worry this budget puts MinnesotaCare and other state health programs at risk because of the dependence on the Health Care Access fund. Per the Governor’s request, there are integrity modifications to the child care assistance program (CCAP) in SF 2 as well as an increase in funding. The bill provides an increase of $22.9 million to the St. Peter, Minnesota Security Hospital.

Higher Education Finance Chapter: 89, SF943

Minnesota is known throughout the nation as a leader in higher education. The Legislature continued to encourage that trend by investing $210 million above the base into the higher education finance system. The funding includes increases to the University of Minnesota ($54M), Minnesota State System ($106M) and the State Grant Program ($36M). 

Job & Economic Development Finance Chapter: 94, SF1456

The initial jobs and energy omnibus bill, authored by Rep. Pat Garofalo (R-Farmington) and Sen. Jeremy Miller (R-Winona), was vetoed by Governor Dayton after it failed to include adequate funding and provisions he felt strongly about. Governor Dayton negotiated an additional $20 million in general fund money compared to the bill he vetoed. The conference committee report was passed as amended and includes:

• $1 million to address wage theft occurrences
• $20 million for Border-Border broadband grant program
• $194.3 million for the Department of Employment and Economic Development
• $107.6 million for the Minnesota Housing Finance Agency
• $46.6 million for the Department of Commerce
• $15 million for the Public Utilities Commission

Controversial public policy regarding small cell wireless placement and plastic bag bans was included in the final bill. The small cell wireless change creates a framework for the placement, or “co-location”, of small wireless facilities on support structures owned by local units of government. Proponents focused on this as an opportunity for business and technological advancement, especially with the upcoming Super Bowl and anticipated cellular traffic.

A year after the Minneapolis City Council approved a city wide ban on plastic bags, the Legislature approved blocking it. The new law blocks local governments from setting policies to ban plastic bags in stores.

Provisions that were not included in the final bill were: VoIP or pipeline provisions, clean air act settlement (VW) language, instruction to the PUC to rule in favor of economic growth and retention, language that caps Xcel Energy nuclear waste cask payments, and internet privacy provisions.

Public Safety & Security Finance Bill Chapter: 95, HF470

Funding for Minnesota’s court system is an important part of the public safety bill. The Governor and legislative leaders fought for months on how best to provide funding for the state’s court system. Chief Justice Lorie Gildea made a very rare public plea to the Legislature to fund the court system at the level proposed by the Governor. Ultimately, the leaders and Governor agreed to a compromise and funded the courts at a higher level. 

The Legislature and Governor also strongly disagreed on a legislative proposal that would have increased criminal penalties for individuals who protest and block highways, airports or other public roadways. As part of the overall compromise, the increased penalties on protesters provisions were removed from Chapter 95, HF470.

Other priority issues in the public safety funding bill included:

• Nearly $9 million for expanded police training in the areas of recognizing and valuing diversity and cultural differences, conflict management and mediation, crisis intervention and mental Illness crises.
• Operational budgets for the Department of Corrections, Department of Public Safety, Public Defense Board, Guardian Ad Litem Boards and Tax Courts, among other agencies.
• Terrorism recruitment prevention grants.
• Bomb Squad office reimbursements.
• Sex trafficking prevention grants.
• Salary increases and pension costs.

Taxes Chapter: 1, HF1

During the past two sessions, no tax bill was enacted into law. The Republican-controlled Legislature was determined to pass a large tax relief bill pass that could be signed into law this year.

The Legislature passed a major tax relief package that reduces taxes by $650 million in FY 18-19 and $780 million in FY 20-21. The bill received bipartisan support and passed the House and Senate 95-29 and 44-20, respectively. Key tax provisions of the new law are as follows:

• Business Property Taxes: The bill exempts the first $100,000 of commercial industrial property value from the state general levy and freezes the annual inflator at the 2018 level. This measure will save businesses roughly $96 million in FY 18-19 and $196 in FY 2020-21.
• Social Security Tax Exemption: Allows individuals to exempt additional Social Security benefits from the state’s income tax. The state’s cost of providing this exemption is estimated to be approximately $117 million in FY 18-19 and $129 million in the next biennium.
• Estate Tax Conformity: Provides $34.9 million this biennium and $74.6 million next biennium to raise Minnesota’s estate tax exemption to $3 million. The federal amount is $5.49 million and indexed for inflation.
• College Savings Plans: The law provides a non-refundable tax credit or income subtraction for contributions to any state’s 529 college savings plan. The cost of this provision is estimated to be $20.4 million this biennium and $21.6 million in FY 20-21.
• Premium Cigar Tax:Reduces the amount Minnesota retailers must pay when purchasing cigars or importing cigars into the state. This provision reduces the sales tax paid and allows the Minnesota cigar retailer to compete against our surrounding states and the internet. 

Governor Dayton reluctantly signed Chapter 1, HF1. In doing so, he also expressed his concerns regarding what the large tax relief package would mean to the future budgets of the state. He claimed he signed the bill because if he had not, the Department of Revenue would have lost its operating appropriation for the biennium.

Transportation Finance Chapter: 3, HF3

At the beginning of the 2017 Session, Governor Dayton proposed over $900 million per year in new funding for roads, bridges and transit. Approximately $400 million was earmarked for maintenance of roads and bridges, another $200 Million was designated for improvements and expansions, and $300 Million was designated for maintenance of the current transit and bus systems and to invest in transit expansions. The Governor’s proposal relied primarily on increases to the gas tax, vehicle registration tax and metropolitan area sales tax for funding. 

The Legislature’s proposal did not include a tax increase. The House and Senate proposed dedicating between $300 million and $550 million of existing General Fund revenues to roads and bridges per year. Their budgets did not fully fund the State’s transit operating system and resulted in a $75 million deficit.

The final bill provides $300 million in new funding per year for roads and bridges from the General Fund, and a one-time increase of $70 million for bus and transit operations. Because this is one-time money, a deficit of $110 million is projected in the next biennium’s operating budget. Language which would have impeded completion of the Southwest Light Rail Transit Line was removed from the bill during final negotiations.

If the Counties Transit Improvement Board is dissolved, it is likely that Hennepin and Ramsey counties would impose a 0.50% sales tax for transit. This sales tax money could be used to finalize the local funding for Southwest LRT.

The Transportation Finance Chapter authorizes new Trunk Highway borrowing of $940 million during the next four years for roads and bridges, consisting of $300 million for the Corridors of Commerce program and $640 million for general state road construction. The Governor also signed the bonding bill, Chapter: 8, HF5, on May 30, which provides an additional $255 million from General Obligation bonding over the next two years for local roads and bridges.

Noteworthy Legislation Not Included in the Budget Bill

There were a record number of bills introduced in the House (2,722) and Senate (2,433) this year. Here are some of the issues that passed which were not part of a budget bill:

ADA Lawsuits: Laws of Minnesota Chapter: 80, HF1542

Chapter: 80, HF 1542 authored by Rep. Dennis Smith (R-Maple Grove) and Sen. Jerry Relph (R- St. Cloud), provides relief for businesses from “drive-by” predatory lawsuits. These lawsuits were being filed against business owners for alleged violations of the disability provisions of the state’s Human Rights Act. 

This bill continued work begun in the 2016 session to address these at times frivolous lawsuits. The new law requires those planning to file a lawsuit alleging a violation to first file notice and provide the business or place of public accommodation at least 60 days to remedy the situation. There is also language allowing for more time to remedy if weather is an issue.

As was the case in 2016, the bill contained compromises to ensure the Governor’s signature. One of the compromise provisions allows suits be filed after the 60 days even if the defect is fixed. However, suits are unlikely to be filed if the alleged violation has been remedied. 

Federal Tax Conformity Chapter: 1, HF2

The Legislature acted quickly at the beginning of session to pass a federal conformity bill for the past two years. This was especially important this year as it covered 2015 and 2016. The bill, Chapter: 1HF2, passed prior to the 2016 filing season and thus prevented taxpayers from having to delay filing or file amended returns. The Department of Revenue accepted the responsibility of administering the retroactive 2015 law changes. The bill provided relief for mortgage indebtedness, students, teachers and veterans, but does not fully conform to sec. 179 and bonus depreciation.

Health Insurance Premium Relief Chapter: 2, SF1

It has been 10 years since a health care related topic was the first priority on the House majority’s agenda, but legislators hit the ground running to fulfill campaign promises to provide premium relief for rising health care costs. Under Chapter: 2, SF1, authored by Rep. Joe Hoppe (R-Chaska) and Sen. Michelle Benson (R-Ham Lake), the state provided $326.9 million in funding for relief — $311.9 million to health care premium relief and $15 million for transitional care for people with new health plans requiring continuation of treatment for serious conditions. There was agreement for premium relief from both parties, but they differed on the method of reforms. This funding, administered monthly on an income based sliding scale basis, came from the state’s budget reserve and will be administered by MMB.

The main topics of discussion between parties were the speed and timeliness of relief. The bill now allows for-profit HMOs to enter the state-run individual insurance marketplace. The Governor was not supportive of for-profit HMOs entering the market place, but he signed the bill into law January 26. The law was effective January 27, 2017, and providers were required to apply the discounts by April 30, 2017.

Israel Discrimination Bill Chapter: 21, HF400

Chapter 21 is a new law which bans state contracts with companies engaged in discrimination against Israel. Proponents of the legislation described the new law as a demonstration to Israel that Minnesota stands united with Israeli citizens. Opponents had argued the bill violated free speech and was merely a political statement. The bill passed the Senate 52-12 and the House 98-28.

Preemption Chapter: 2, SF3

HF600, authored by Rep. Pat Garofalo (R-Farmington), HF600 and Sen. Jeremy Miller (R-Winona), would have preempted local governments from enacting ordinances requiring private employers to adhere to labor policies that:

• Pay minimum wage rates higher than the state’s minimum wage.
• Require a private employer to offer leave, paid or unpaid.
• Provide advance notice about work schedules.
• Provide particular benefits, employment terms or working conditions

Minneapolis and St. Paul both have ordinances regarding paid sick time that go into effect on July 1, 2017, as FaegreBD detailed in a May 31 legal update .

The new law would have required the cities to abandon these ordinances. Authors hoped this bill would prevent a patchwork of labor standards throughout the state.

Opponents felt this bill benefited corporations and took control out of the hands of local officials. As part of the leadership agreement, preemption was to be a stand-alone bill, allowing the Governor to veto it. However, during Special Session, the Republicans added pension provisions, wage theft protections and paid family leave for state employees to entice the Governor to sign the bill. Ultimately, the Governor vetoed it during Special Session. His reasons for vetoing the legislation can be found in his veto letter.

Real ID Chapter: 76, HF3

Minnesotans no longer have to worry about boarding an airplane with their driver’s license. The Legislature passed and Governor Dayton signed the bill that would make Minnesota compliant with the federal Real ID law — meaning Minnesotans will not have to use a passport to board domestic flights or gain entrance to federal and military buildings next year.

Reinsurance Chapter: 13, HF5

The $543 million reinsurance bill, Chapter: 13HF5 aims to stabilize the health insurance market. This bill establishes a state-based reinsurance program in which a nonprofit board will allocate a combination of federal and state dollars to insurance companies who carry high-cost customers that drive up the cost in the individual market. Once an insurance company hits $50,000 in claims, it would be eligible for an 80 percent subsidy up to $250,000.

Stadium Authority Changes

The Minnesota Sports Facilities Authority (MSFA) was another topic of hot debate around the Legislature all year. Reports about the potential misuse of the suites at U.S. Bank Stadium led to legislative investigative hearings. Multiple bills were introduced to address the composition of the authority and increase public disclosure of their actions. A conference committee was formed to address further action by the Legislature, but it was unable to come to a conclusion prior to session adjourning.

Sunday Alcohol Sales Chapter: 6, HF30

Minnesota joined 38 other states in the country allowing the sale of alcohol on Sundays. Sen. Jeremy Miller (R-Winona) and Rep. Jenifer Loon (R-Eden Prairie) led the fight. The law goes into effect right in time for Independence Day celebrations, on July 2, 2017.

A Productive Legislative Session — But is it Over?

In conclusion, although the 2017 legislative session ended with some contention, Governor Dayton signed all of the omnibus budget bills, bonding bill and the tax bill into law. Even though he objected to provisions in many of the bills, he felt it was better for the state as a whole to have a budget in place rather than the uncertainty of a shutdown on July 1. 

Governor Dayton line-itemed an appropriation to fund both the House and Senate’s operating budgets (view here) in hopes of strong-arming leaders to come back to the table and agree to another Special Session to address his concerns with the budget and tax bills. Both bodies have budget reserves on hand, but will need a decision on the budget sometime this summer to prevent staff layoffs.

The Governor can call a Special Session at any time and bring the Legislature back to St. Paul. But barring a Special Session, the 2018 Minnesota Legislative Session will reconvene on February 20 at noon. This will be the second year of the two-year biennium.

During the even-numbered years, the Legislature’s focus has traditionally been on a bonding bill, a supplemental budget proposal, and finishing work on policy bills. Bills introduced in 2017 are available for action during the 2018 legislative session.