As the clock struck midnight on May 20, the 2013 legislative session concluded with the passage of the Omnibus Tax Bill in the Senate and the Revisor's Bill in the House. Despite controlling DFL majorities in both the Senate and House (39-28 and 73-61, respectively), significant and controversial legislation created angst in the final days about how this year's decisions would impact the next election cycle. Examples include passage of the historic same-sex marriage legislation and an attempted filibuster by Republicans in protest of pro-unionization legislation. Initial budget targets set by Governor Dayton, the House and Senate were miles apart, and only after lengthy negotiations in the final days did the budget stalemate get resolved, allowing conference committees to hastily complete work on the major budget bills.
The Legislature stands adjourned until February 25, 2014, when it will reconvene primarily to put together a state bonding package. In addition, expect several "unfinished" policy proposals to resurface as well next year, such as a renewed attempt at gun safety laws, further discussion on regulation of silica sand mining, continued negotiations on minimum wage, and an effort to legalize marijuana for medical purposes.
Record-Setting Tax Increases
The legislature passed a budget that increases state spending by 8.1 percent and revenue by 8.8 percent. This is the largest tax increase in state history, totaling $2.1 billion in revenue to eliminate the current $627 million budget deficit, provide $400 million in property tax relief, and fund major investments in K-12 and higher education. Expect this "historic tax increase" to be a major Republican theme in the coming election cycle, countered by the DFL positioning this session as one of historic investments.
Personal Income Tax Rate Hike
The creation of a fourth income tax tier increases the top rate from 7.85 percent to 9.85 percent, which gives Minnesota the fourth highest income tax rate in the country. The new top tier will raise $1.1 billion in revenue for the 2014-15 biennium and accounts for half of the total new revenue from the tax bill.
Business Taxes Increase
Businesses will see significant changes to tax laws as $424 million in revenue will be generated in the coming biennium. A major blow to the high tech industry is the repeal of the foreign royalty deduction the state created more than two decades ago. This provision allowed royalties on sales of intellectual property in foreign jurisdictions to be repatriated with limited taxes imposed, which in turn created opportunities to maintain and grow high-paying research and development here. Additional new business sales taxes include those on leased warehousing and storage, electronic and commercial equipment repair, certain digital products, and repeal of the current sales tax exemption on telecommunications equipment purchases. Major expansion of the business-to-business sales tax originally proposed by Governor Dayton did not become law.
Cigarette and Alcohol Taxes
Taxes on alcohol and cigarettes drew a lot of discussion at the Capitol. In the end, alcohol taxes were dropped from consideration after the Governor indicated he was not supportive. However, cigarette smokers will see an increase of $1.60 per pack, which raises the total tax from $1.23 to $2.83. While the additional cigarette sales tax revenue will go into the General Fund, a one-time new cigarette tax would be imposed on current inventories to prevent retailers and wholesalers from stockpiling product before the effective date of July 1, 2013. The floor stock tax is expected to raise $24.5 million, which would be placed in the Vikings stadium reserve account to finance stadium construction bonds. Other backup revenue for the stadium would come from repealing corporate income tax deductions and credits.
Property Tax Relief
Multiple forms of property tax relief were enacted in the tax bill totaling $400 million. There are changes to the Homestead Credit Refund to increase eligibility among homeowners, an increased credit for renters and a new sales tax exemption for cities and counties. The bill will also make changes to the local government aid formula that would increase state aid by $80 million.
Affiliate Nexus for Online Retailers
For a number of years, Minnesota's retailers have been pushing for passage of the "Main Street Fairness Act" that puts all retailers on even footing, requiring all to collect sales tax on certain Internet retail sales. The new state provision defines a solicitor and provides that retailers have a physical presence in Minnesota if they have a solicitor relationship and the total receipts of online sales to customers in the state exceed $10,000 in the last 12 month period. Retailers who fall under this definition have a duty to collect sales tax on sales to Minnesota residents.
Economic Development and Job Creation
The tax bill includes an array of investments in economic development projects, intended to help spark job creation throughout the state. This includes financing of expansion plans for the Mayo Clinic in Rochester, the Mall of America in Bloomington, 3M Company in Maplewood and a greater Minnesota tax credit.
The Mayo Clinic's plan to invest $3.5 billion in the "Destination Medical Center" — to solidify the city of Rochester as the premier medical facility destination in the world — received support from the state for $404 million for related public infrastructure investments. When combined with infrastructure support generated by the City of Rochester and Olmsted County, up to $585 million could be available for infrastructure investments. The DMC plan also envisions private parties investing an additional $2.1 billion to help fund the overall project that will create 30,000 jobs over two decades.
In Bloomington, the Mall of America has been working on plans since 2006 to develop Phase Two of the mall to include more retail, hotels, a water park, a performing arts center and office towers. The expansion will receive a $250 million subsidy to build roads, water and sewer infrastructure. The tax break comes from the fiscal disparities pool, a program designed to spread out the property tax benefits of new metro-area development among metropolitan communities.
In Maplewood, the city received authorization to establish a TIF district on the campus of the 3M Company to help it expand its operations. If the city selects to do so, the TIF district will be subject to special rules that differ from general TIF law.
To encourage and expand greater Minnesota business employment, a certification program for a sales tax exemption will be implemented by the Department of Economic and Employment Development. In order to qualify, a business must have been in operation for at least one year; must pay or agree to pay its employees compensation of at least 120 percent of the federal poverty line; must agree to expand its employment; and receive approval from the commissioner of DEED.
Health and Human Services
Governor Dayton signed the Omnibus Health and Human Services (HHS) Bill, much of which restores cuts to services and providers that were made in 2011. The approximately $11 billion HHS budget contains provisions that expand eligibility for state-run health care programs such as Medical Assistance, as well as establishes MinnesotaCare as the "basic health plan" under the new federal health care law. The bill contains funding increases for provider groups, nursing homes and public health programs.
Health Insurance Exchange
On March 20, Governor Dayton signed into law the legislation creating the state-based Health Insurance Exchange. The legislation weaved its way through nearly every committee in the House and Senate before ultimately passing each body on party line votes. The legislation establishes the "MNsure" exchange as an online marketplace where individuals and small businesses will purchase health plans. Sen. Lourey (DFL-Kerrick) and Rep. Atkins (DFL-Inver Grove Heights) indicated that the state exchange amounts to the most significant health care reform in more than 50 years.
An estimated 300,000 uninsured Minnesotans will benefit from the exchange, with projected savings of $168 million per year in uncompensated care. One in five Minnesotans will utilize MNsure to access health coverage and the federal and state subsidies that come with the program. Open enrollment in the exchange will begin on October 1, 2013. Coverage that is purchased through MNsure will begin on January 1, 2014.
Consistently the largest portion of the budget, the E-12 Education budget saw one of the largest increases this session with total spending of $15.66 billion: an increase of $174 million for the biennium. The heart of the education discussion this session focused on how the state creates a strong workforce for the future of Minnesota. The education finance bill includes $40 million towards the establishment of a program to distribute early learning scholarships to increase access to high-quality early childhood programs. The bill also attributes $134 million for the implementation of all-day, every-day kindergarten programs on a voluntary basis statewide.
Additional highlights of the education finance bill include a 1.5 percent increase to the basic funding formula in FY14 and FY15, amounting to a $238 million appropriation; special education funding of $38 million; an appropriation of $10 million for career and technical education; and $1.4 million for teacher evaluation pilot funding. The bill also re-instituted the general education levy, which is a statewide property tax that will be utilized for the educational investments enacted this session.
Higher Education and Workforce Development
The higher education budget was increased by $250 million, bringing the total budget expenditures to $2.81 billion. Overall, $102 million was invested in the MnSCU system, $78 million in the University of Minnesota and $22 million in other Office of Higher Education programs. The University of Minnesota and the Minnesota State Colleges and Universities received significant increases in funding coupled with a tuition freeze at these public institutions. The state grant program, which provides need-based aid to students, also received a significant increase of $50 million.
Limited Bonding Bill for Capitol Repairs
The Governor and the House sought a major $800 million public works finance bill that fell five votes short of passage in the House with three days remaining in the legislative session. Lawmakers scrambled to come up with another plan and on the last day of session the passed a much smaller bonding bill that primarily focused on funding repairs to the state capitol building. The bill totaled $176 million, which included $109 million for further renovations to the Capitol, $22 million for a parking ramp in the Capitol complex, $20 million for flood mitigation projects, $18.9 million for an expansion to the Minneapolis Veterans Home and $8 million so the state can match a federal grant for the Public Facilities Authority for clean water revolving funds.
Transportation and Transit
Debate regarding the transportation budget was intense throughout session. During the interim, the Transportation Finance Advisory Committee met to establish recommendations for transportation funding in the 2014-15 biennium. The recommendations included utilizing increased gas taxes and a metropolitan area sales tax to finance necessary projects to maintain and develop infrastructure across the state. The recommendations were met with mixed feelings: while Sen. Dibble (DFL-Minneapolis) and Rep. Hornstein (DFL-Minneapolis) seemed supportive of increasing taxes to make necessary investments, Governor Dayton did not support an increased gas tax.
Despite creative attempts by Sen. Dibble and the Senate to obtain additional funding for transportation, the final agreement did not include new funding. Regardless, the transportation bill contains a number of critical investments, including $184.68 million for the Metropolitan Council, $37 million of which will be used as a one-time appropriation for the Southwest Light Rail Transit project.
Silica Sand Mining
Entering the legislative session, silica sand mining in Southeastern Minnesota was a high-stakes issue for many members of the House and the Senate. During his inaugural campaign, Sen. Schmit (DFL-Red Wing) promised voters that he would champion a drive for increased regulation for silica sand mining companies. Sen. Schmit introduced an array of bills throughout the legislative session that provided for increased taxes on silica sand mining companies; moratoria on mining on a statewide level and in southeastern portions of the state; and heavier regulation of the industry. On the House side, Rep. Hansen (DFL-South St. Paul) supported a scaled down increase in regulation and new taxation of the industry.
The budget for environment, natural resources and agriculture includes $1 million for the Environmental Quality Board to develop an interagency technical assistance team regarding the mining, processing and transporting of silica sand and to develop model standards and criteria for silica sand mining. There is also a one-time general fund appropriation of $600,000 for rulemaking pertaining to silica sand projects, reclamation, air quality and processing. The bill permits local governments to extend for one year an ordinance prohibiting new or expanded silica sand projects.
Just months after Minnesotans voted against a ballot initiative to constitutionally define marriage as being between a man and a woman, the State Legislature passed the "Freedom to Marry Act." Nearly 6,000 Minnesotans who supported or opposed the legislation came to the Capitol to witness the monumental vote. The Act, sponsored by Sen. Dibble (DFL-Minneapolis) and Rep. Clark (DFL-Minneapolis), expands the definition of marriage to include same sex couples and takes effect on August 1.
On May 14, Governor Dayton, flanked by bill authors Sen. Dibble and Rep. Clark, stood on the Capitol steps in front of a large crowd to sign the Freedom to Marry Act into law. In his remarks, Dayton asserted that Minnesota legislators who voted in favor of the legislation joined a "pantheon of exceptional leaders, who did something extraordinary . . . [and] changed the course of history for our state and our nation."
Minimum Wage Increase Stalls
Sure to be a focal point for the next legislative session is a proposal to increase the minimum wage. Minnesota's minimum wage currently stands at $6.15, which is below the federal minimum wage at $7.25. This session, the House and Senate each approved increases but could not agree on the details of a final bill as time ran out. The House version sought to raise the wage incrementally over time from $7 per hour in August 2013 to $9.50 in August 2015. The Senate plan provided a wage of $7.50.
Family Child Care Providers Representation Act
In the final days of the legislative session, the Legislature passed the Family Child Care Providers Representation Act. SF778, sponsored by Sen. Pappas (DFL-St. Paul) and Rep. Nelson (DFL-Brooklyn Park), was met with controversy throughout session.
The bill permits family care providers, who care for children receiving a state subsidy, and personal care attendants to form, join or participate in the activities of a labor organization for the purpose of representation and negotiating with the state. Senate and House Republicans conducted their best attempt at a filibuster, prolonging debate in both bodies. After 17 consecutive hours of debate, the bill passed in the Senate with a 35-32 vote. The House debate stopped and started over a span of two days before the bill passed on a 68-66 vote.
Gun Safety Measures Enacted
The Public Safety Finance Bill passed this year without gun control measures that advocates had pursued to curb gun violence. There were a variety of bills heard in committee that met strong resistance from the National Rifle Association and local pro-2nd amendment groups. In the end, there were a few areas of agreement that were signed into law that shorten the amount of time law enforcement and courts have to submit data on felons or other people ineligible to possess firearms to the state Bureau of Criminal Apprehension and the National Instant Criminal Background Check System. Also, there were funds for school safety programs and in-school mental health assessments. Look for this issue to come up again next session as Public Safety Chair Rep. Michael Paymar (DFL-St. Paul) and gun control proponents are still working on ideas to prevent gun violence.
Legislator Pay Increase on Ballot in 2016
A provision that would increase legislator salaries was pulled from the omnibus State Government Finance bill after it inspired significant opposition. As an alternative, the Legislature approved a constitutional amendment, to be on the ballot in 2016, that would provide for a 16-member citizen council appointed by the governor and chief justice of the state Supreme Court to set legislators' salaries.
Ban the Box
In order to give people with a criminal background a better chance at obtaining employment, a new law was passed to remove the question on a job application that asked applicants to check a box about whether they have been convicted of a felony or gross misdemeanor crime. "Ban the Box" now includes private employers among those who must wait until an applicant is contacted or interviewed to ask the question. Employers may still make the inquiry in to an applicant's criminal history after the original application process has been submitted and an applicant is being considered for a position.
The legislature adjourned on time; the budget is balanced; and increased spending was largely directed towards education and property tax relief. Republican minorities are criticizing the $2 billion tax increase and spending priorities supported by the DFL. The voters will ultimately decide whether they approve of the work of the DFL majorities when they go to the polls in November 2014.