Minnesota Weekly Legislative Update: Tax Priorities Take Shape as Second Deadline Looms

Legislators and committees are racing to meet the second deadline, which occurs at midnight tonight. All policy bills must be approved by committees in both the Minnesota House and Senate by this deadline to remain viable as stand-alone legislation for the 2017 Session. The Senate GOP is also expected to release its budget targets for the next biennium. The House GOP will likely follow with its budget targets in the next week. The House Ways and Means Committee will then adopt a budget resolution consistent with these targets setting out net expenditures, amounts to be set aside for the state’s budget reserve and spending limits for each budget category.

These budget targets and the House budget resolution govern how much can be spent in each appropriation bill, the tax bill and, possibly, a capital investment bill. Appropriations bills must be reported out of the House and Senate finance committees by the third and final committee deadline, which is Friday, March 31. There is no deadline for the tax and capital investment bills. 

Senate Leadership Outlines Tax Priorities

On Thursday, Senate Republican leadership held a press conference outlining its tax proposal. The proposal targets $900 million in tax relief for the biennium, focusing on two main areas: permanent middle class tax relief and business tax relief targeting job growth. Middle class tax relief comes in the form of lowering the tax rate on the first tier, which provides tax relief to 81 percent of all taxpayers, targeting middle income families making less than $135,000 a year. This proposal was touted as being the first major tax rate cut since 2000. The Senate Republican plan would also phase out the tax on Social Security for seniors, which benefits seniors making less than $120,000 a year. Other elements of the bill benefiting individual taxpayers include a tax credit for students paying off student loans.

The key element of their business tax relief proposal is exempting the first $100,000 of market value from the statewide business property tax and ending the automatic increases to this tax. Other elements of their proposal include bringing the estate tax more in line with federal law, property tax credits for agricultural land, and changing the Section 179 depreciation schedules to allow businesses to receive tax benefits earlier than current law.

Sen. Roger Chamberlain (R-Lino Lakes) stated that many of these provisions were included in the 2016 Omnibus Tax Bill, which was vetoed by Governor Mark Dayton, and are scalable. Full details of the bill are still being worked on and will be released in the next two weeks, but detailed proposals are laid out on the Senate Republicans website.

Governor Releases Supplemental Budget

Governor Dayton released his supplemental budget today. Of the $350 million remaining in surplus from this biennium, Dayton proposes putting $200 million into a contingency account to handle potential federal government policy and funding changes and $100 million into preK, bringing the total to $175 million. The budget proposal also includes $42 million for fighting the opioid epidemic, funded by increasing the fee on prescriptions that pharmaceutical companies are responsible for paying. During his press conference, Dayton emphasized the importance of maintaining structural balance in the budget, reminding people of what happened in 1999-2000 when there was a surplus and then a decade of deficits. He reserved comment on the Senate Republican tax plan until he sees the details.

Reinsurance Program Debated in House and Senate

Proposals establishing a reinsurance pool for health insurance carriers were debated on both the House and Senate floor this week. These proposals intend to help stabilize rising insurance premiums in the individual marketplace by providing a financial cushion to health carriers. HF5, authored by Rep. Greg Davids (R-Preston) was heard on the House floor Monday. It is estimated that about 2 percent of high-risk patients incur approximately 40 percent of the individual market’s medical bills, which results in higher premiums for everyone in that network. Supporters believe that allowing health carriers to share the burden of these high risk patients will result in lower premiums for everyone. HF 5 provides that once insurers hit $50,000 in claims, they would be eligible for a 50 to 70 percent reimbursement from the reinsurance pool, up to $250,000 in claims. Nonpartisan fiscal staff estimates that this proposal will cost approximately $389 million this biennium. A number of current funding sources would be redirected into this new account, including a one-time $80 million transfer from MinnesotaCare, the state’s subsidized health care program for low-income residents. HF 5 also includes a $70 million annual General Fund appropriation, along with taxes from insurance companies and HMOs. HF5 passed the House on a largely party line vote, 77-53.

The Senate companion, SF 720, authored by Senator Gary Dahms (D-Redwood Falls), was heard on the Senate floor Wednesday. While similar to the House proposal, SF 720 is estimated to cost approximately $600 million for the biennium and redirects about $180 million from MinnesotaCare and potentially up to $120 million per biennium from the state’s budget reserve. SF 720 passed the Senate on a 37-29 party line vote.

These proposals were challenged by DFLers, who argued against redirecting money from MinnesotaCare and spending so much for a program that doesn’t require insurance companies to lower premiums. They also offered an amendment that was rejected on a party line vote, expanding MinnesotaCare eligibility to people with higher incomes. Republicans argued that the Affordable Care Act (ACA) is mainly responsible for the increased premiums in the individual marketplace, and these proposals are a better way to address the problem than direct government subsidy.

These proposals now head to a conference committee.

Met Council Reforms Continue to Progress

Legislation restructuring the Met Council’s governance model continues to advance at the Legislature. HF 1866, authored by Rep.Tony Albright (R-Prior Lake), was heard in the House Transportation Finance Committee on Tuesday. HF 1866 expands the Council from 17 to 27 members and provides for each county in the metropolitan area to appoint a member, as well as an elected official to be appointed from each of the 16 Council districts by a committee of elected officials from that district. Proponents argue these appointments will make the Council more accountable to the interests of local citizens. It also requires legislative approval of the Met Council’s annual budget and sets transit farebox recovery objectives.

HF 1866 further prohibits the Council, counties and regional railroad authorities from spending money to study, plan, design, construct or expand a light rail line without the legislature explicitly authorizing the project.

In Committee, HF 1866 was amended to lower the farebox recovery goal from 60 percent to 40 percent. DFL members tried to remove the prohibition of local governments from being able to use revenues to plan, design and construct any light rail projects not authorized by the legislature. They also raised concerns that no modes of transit currently are achieving a 40 percent farebox recovery and that number is unrealistic. The bill passed as amended and was referred to the House Ways and Means Committee.

The companion bill in the Senate, SF 1490 authored by Sen. David Osmek (R-Mound), is awaiting a hearing in the Senate Transportation Finance and Policy Committee.

Upcoming Important Dates

• Third Committee Deadline - Friday, March 31, 2017: ◦Committees must act favorably on major appropriation and finance bills by this date. This deadline does not apply to the House Committees on Capital Investment, Ways and Means, Taxes, or Rules and Legislative Administration, nor to the Senate committees on Capital Investment, Finance, Taxes, or Rules and Administration.
• Legislative Break - The House and Senate will be in recess starting Saturday, April 8 through Monday, April 17. No Committee, floor, or other action will take place in either body that week.

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