Despite a historic surplus, the Minnesota Legislature adjourned sine die on Sunday, May 22 with most of their work unfinished. This result was far different from the expectations of many when the Legislature convened in late January. Governor Walz and legislative leaders expressed optimism that the state’s surplus — then an estimated $7.7 billion — with an additional $1.2 billion in federal American Rescue Plan Act (ARPA) funding would lead to bipartisan agreement on supplemental spending, primarily in the areas of public safety, health and human services, and education, while also providing meaningful tax relief and a capital investment bill.
The state received more good news in February when Minnesota Office of Management and Budget's (MMB) February forecast projected an increase in the state’s surplus to $9.25 billion for the remainder of this biennium. This increase was primarily attributable to increased revenue from individual income, sales and corporate taxes. MMB’s forecast also projected a surplus of almost $6 billion for the next biennium. In a cautionary note, MMB identified a number of risks potentially impacting the surplus through the final 16 months of this biennium including inflation, supply chain issues, labor force participation, path of the pandemic and the continuing impacts of the Russian invasion of Ukraine.
The House and Senate spent most of March and April preparing and processing supplemental tax and spending bills based on caucus priorities: tax relief with limited long-term care and law enforcement funding in the Senate; and education, housing, and health and human services spending in the House. These priorities were developed and advanced as all 201 legislators were digesting new districts drawn and released by a five-judge redistricting panel in mid-February. It also occurred as the Legislature returned to in-person access and committee meetings after operating remotely for the last two years because of the pandemic.
After protracted negotiations, Governor Walz and legislative leaders reached an agreement on a budget framework a week before session’s end. This framework included $4 billion in additional spending, primarily in the areas of public safety, health and human services and education, as well as $4 billion in tax relief and a $1.4 billion capital investment bill. Details were left to House and Senate conferees. Tax conferees were able to agree on a bill providing nearly $4 billion in tax relief, which included reducing the first-tier individual income tax rate to 5.1%, eliminating all state taxes on social security benefits and reforming the renter’s credit. Other conference committees including higher education, agriculture and economic development were able to complete their work as well.
Unfortunately, negotiations stalled in the education, public safety and health and human services conference committees and neither the House nor Senate released a capital investment bill. In the end, the tax bill and other agreed to supplemental budget bills fell victim to this impasse and the Legislature adjourned unable to implement the budget framework. The one exception being the Omnibus Agriculture bill which was passed by the House and Senate and signed by Governor Walz. Other legislation left unresolved when the Legislature adjourned includes sports betting, a pension bill benefiting public safety and other state employees, and legislation to assist in a refinance of the appropriation bonds used to fund the state and City of Minneapolis’ share of U.S. Bank Stadium.
Legislative leaders and Governor Walz are discussing the possibility of a special session. However, it is an open question whether the differences prohibiting the Republican-controlled Senate and the DFL-controlled House from finalizing the budget framework agreed to during the last week of regular session can be resolved, a prerequisite to any successful special session. As of now, both Governor Walz and Speaker Melissa Hortman (D-Brooklyn Park) have indicated they support a special session while Senate Majority Leader Jeremy Miller (R-Winona) and House Minority Leader Kurt Daudt (R-Crown) have indicated they do not. A special session is not a necessity, as the state’s budget was set last session. If the Governor and legislative leaders fail to reach agreement on a special session, the surplus will remain on the bottom line for the 2023 Legislature to decide next steps.
UI Trust Fund Fix/Frontline Worker Pay
After months of negotiating, the House and Senate were able to agree on replenishing the state’s Unemployment Insurance (UI) Trust Fund and provide bonuses to frontline workers. The agreement also puts $190 million into the COVID response account that Governor Walz can use to cover emergent needs related to the pandemic.
The state’s UI Trust Fund was drained during the pandemic and owed the federal government more than $1 billion. The agreement repaid the federal government and restores the UI Trust Fund to pre-pandemic levels using a combination of American Rescue Plan Act funds and the state’s surplus. Without action, Minnesota employers would have been required to replenish the UI Trust Fund through a surcharge and significantly increased base rates, which would have been reflected in the first quarter payment due April 30th. The state will refund or credit excess payments made by employers who paid the higher rate after receiving their statements in March.
The frontline worker bonus pay pool was set at $500 million, double the amount approved by the Legislature during the 2021 session. Approximately 660,000 workers will qualify for a bonus. To qualify, an individual must have worked in a state-recognized frontline sector for at least 120 hours between March 2020 and July 2021, was not able to telework, worked in close proximity to individuals outside the individual’s household, did not receive unemployment insurance and meets the legislation’s income requirements. There is a 45-day window during which eligible employees must apply. The Department of Labor and Industry (DOLI) currently estimates this window to be June 8-July 22. These dates, however, are subject to change. After the application period closes, DOLI will determine the payment amount based on the available appropriation and the number of applications received from eligible workers. Each eligible worker will receive the same amount, which will not exceed $1,500. The bonus is exempt from Minnesota taxes and is not considered income for purposes of determining eligibility for childcare, general assistance and other state economic assistance programs.
Employers in a frontline sector must provide notice to employees advising them who may be eligible for a frontline worker payment and how to apply for benefits. This notice must be provided no later than 15 days after the application window opens and be in a form approved by DOLI. Notice must be provided using the same means an employer normally uses to provide notice to their employees and must at least be as conspicuous as:
- Posting a copy of the notice at each worksite where workers work and where the notice may be readily observed and viewed by all workers working at the site, or
- Providing a paper or electronic copy of the notice to all workers.
DOLI will provide assistance and guidance to employers regarding the notice requirement as implementation moves forward. A website has been established where employers and employees can sign up to receive updates on the implementation of the frontline worker bonus program.
Other Legislative Accomplishments
The Legislature was also able to agree to and approve the following legislation:
- Reinsurance: On March 31, the Legislature reauthorized a three-year extension of the state’s reinsurance program. Created five years ago, this program helps stabilize individual health insurance premiums for approximately 165,000 Minnesotans in the individual market by paying a portion of the cost of extremely high medical bills. Absent this program, individual premiums have been estimated to be approximately 20% higher, as insurance companies covering the full cost of these bills would be passing them on in the form of higher premiums. Reauthorizing this program by April 1 was a condition of filing a required waiver from the federal government under the rules of the Affordable Care Act to continue the program.
- Omnibus Liquor Bill: After years of effort, significant changes to the state’s liquor laws were enacted in the closing hours of session. These changes include:
- On-Site Sales. Currently, brewers (including Surly, Summit, Fulton and Castle Danger) who brew more than 20,000 barrels a year cannot sell to-go growlers of their own beer. This cap is now raised to 150,000 barrels.
- Container Size Regulations Eliminated. Container size regulations for craft breweries were eliminated, allowing them to sell six-packs, four-packs, and other small containers.
- Cocktail Rooms. Allows all distilleries in the state to have cocktail rooms.
- Coleman Act. prohibits exclusive contracts in the sale of hard spirits by treating in-state and out-of-state manufacturers similarly.
- Broadband: The Legislature and Governor Walz agreed to spend $50 million in state money over the next three years on broadband grants, as well as $60.7 million from the capital projects fund within Minnesota’s share of the federal American Rescue Plan to build or support broadband infrastructure. These amounts are in addition to those Minnesota may receive from the recently passed federal Infrastructure Investment and Jobs Act.
- Drought Relief: After a year of discussions, the Legislature agreed to assist those impacted by the 2021 drought. This deal includes $8.1 million for livestock and specialty crop farmer aid, $2.5 million for drought relief loans and $5.3 million for drought-killed seedlings.
Redistricting and Retirements
Redistricting added to the complexity and contentiousness of this year’s session. The Legislature retains the authority to draw the state boundaries for state and federal offices. However, due to the lack of consensus between the House, Senate and Governor, this task has traditionally been performed by the courts. This year was no different. The Republican-controlled Senate and DFL-controlled House made little attempt to redraw the state’s political boundaries prior to the statutory deadline, and a five-judge Special Redistricting Panel appointed by the state’s Supreme Court announced new state and congressional districts on February 15, 2022. The new state legislative map reflects demographic shifts from greater Minnesota to Minneapolis, St. Paul, surrounding suburbs and select regional centers. You can view the House and Senate maps on the Minnesota Legislature website.
Redistricting resulted in 22 pairings of current legislators and several open seats, primarily in the metropolitan area. It also resulted in a significant number of legislator retirements. To date, 51 State Senators and Representatives, including 25 DFLers, 24 Republicans, and 2 Independents, have announced their retirement. This is the largest voluntary turnover in the Legislature since 1972. Of these retirements, 14 are seeking legislative office in the other Chamber and 5 are seeking other elective office. Retirements include these key leaders and committee chairs:
- Senator Paul Gazelka, Former Senate Majority Leader (R-East Gull Lake)
- Senator Tom Bakk, Former Senate Majority Leader and Tax Chair (I-Cook)
- Senator Susan Kent, Former Senate Majority Leader (DFL- Woodbury)
- Senator Melissa Lopez Franzen, Senate Majority Leader (DFL-Edina)
- Senator Julie Rosen, Senate Finance Chair (R-Fairmont)
- Representative Paul Marquardt, House Tax Chair (DFL-Glyndon)
- Representative Ryan Winkler, House Majority Leader (DFL-Golden Valley)
A complete list of legislative retirements can be found on the state website. With these retirements come a significant loss of institutional knowledge. The Minnesota Legislature will look and operate much differently next session.
Upcoming Important Dates
Upcoming important election and legislative dates include:
- June 24: Early In-Person and Vote by Mail for Primary Election Commences
- August 9: Primary Election
- September 23: Early In-Person and Vote by Mail for General Election Commences
- November 8: General Election
- January 3: 2023 Minnesota Legislature Convenes in Regular Session