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State budget

The November budget forecast released this week by Minnesota Management and Budget (MMB) shows a small deficit in the current biennium ($188 million for FY 2018-19) and a larger deficit for the following biennium ($586 million for FY 2020-21). In addition, MMB does not include the cost of inflation in its long-term forecasts; it estimates the cost of inflation for FY 2020-21 to be approximately $1.3 billion.

There are significant unknowns at the federal level, including whether tax reform or funding for the Children’s Health Insurance Program (CHIP) will pass, and whether the economy continues its historic expansion. The state’s previous February forecast included assumptions regarding federal legislation that were overly positive ‒ and was higher than the average of 50 other forecasts. This newest November forecast changed those assumptions.

House Speaker Kurt Daudt (R-Crown) indicated that changes in this November forecast were made for political purposes. Senate Majority Leader Paul Gazelka (R-Nisswa) called the report “obsolete on arrival” due to the pending actions at the federal level. Gov. Dayton urged caution and noted that he would not use any budget reserves for what, in his opinion, could be solved with sound budgeting this session.

On Tuesday, Gov. Dayton announced he would sign all of the budget bills passed by the Legislature, as well as the bonding and tax bills. Nonetheless, significant controversy continues. Here’s a play-by-play of the final days of the special session, including the CGMC perspective on what may come:

Special session marked by frustration
Before the Legislature had even sent Gov. Dayton all of its budget bills, loud protests rang through the Capitol urging the Governor to “veto everything.” Activists were angered by the perception that Republican leadership in the Legislature had sneaked controversial provisions into a number of bills after reaching an agreement with Gov. Dayton.

Late in the week, it seemed that the tax bill (which includes a $15 million LGA increase) was a possible veto target. Gov. Dayton and other Democrats, including Senate Minority Leader Tom Bakk, expressed concern over the high cost of the GOP’s tax bill, which comes in at $650 million in the first biennium and grows substantially thereafter. Sen. Bakk urged Gov. Dayton to veto the bill to avoid future deficits.

Legislature tries to tie Dayton’s hands
To pressure Gov. Dayton into signing the tax bill, legislators inserted a provision into a state government funding bill without the Governor’s knowledge. The provision would have withheld all funding for the operation of the Department of Revenue unless Gov. Dayton signed the tax bill. On Tuesday, House Speaker Kurt Daudt acknowledged to reporters the provision was placed in the bill behind Gov. Dayton’s back. When asked if the Governor knew about the provision in advance, Speaker Daudt replied, “He found it eventually.”

Dayton signs budget bills, but responds with his own maneuvers
In response to the Legislature’s maneuver, Gov. Dayton wrote to leaders, “I consider this provision … to be a reprehensible sneak attack, which shatters whatever trust we achieved.” Angered by the perceived slight, Gov. Dayton signed all of the budget bills, but used his line-item veto power to strike any new funding for the operation of the Legislature itself. Gov. Dayton indicated that vetoing the Legislature’s funding was a move to bring legislators back to the negotiating table. Arguing they had not negotiated in good faith, the Governor wants to re-open negotiations on items in the tax bill including tax freezes on cigarettes and the state commercial/industrial property tax.

Rather than return to the negotiating table, the Legislature is likely to sue the Governor on constitutional grounds. The courts will be asked to determine whether the Governor in fact has the authority to use his veto pen to eliminate funding for another, co-equal branch of government.
 
The CGMC perspective
Regardless of how the controversy plays out, provisions in the tax bill that benefit CGMC members cities, such as the $15 million LGA increase and LGA formula fixes, are not likely to be impacted. A lawsuit between branches of government would be on the narrow issue of the Legislature’s funding. In the unlikely scenario that negotiations do restart, they will likely be limited to just a few controversial items. The CGMC will continue to monitor developments.

Final outcome of CGMC priorities
For a brief overview of how the CGMC’s top legislative priorities fared this session, please see this 2017 Outcomes Chart.

The House and Senate, purportedly in agreement with Gov. Dayton, passed a tax bill today that comes in around $648 million for the 2018-19 biennium. The bill includes a permanent $15 million increase in Local Government Aid. To see a preliminary estimate of how your city will do with this increase, click HERE for the CGMC’s updated LGA run.

We want to extend a sincere THANK YOU to everyone who responded to our numerous Action Alerts by contacting your legislators and the Governor about the need for an increase in LGA funding. We were hoping for a larger increase, and we will continue the fight, but it was thanks to your help that this final number is higher than previous proposals from both the House and Senate.
 
Here are links to the SPREADSHEET and BILL LANGUAGE for the tax bill.

With mere hours to go until tonight’s midnight deadline, the Minnesota Legislature is hard at work trying to negotiate and pass a state budget and other key pieces of legislation. At this point it appears we are likely headed for a short special session to complete the state budget.

Legislators were holed up in St. Paul over the weekend and managed to pass a few budget bills out of the House and Senate, including the environment and jobs bills. A number of bills are still on the agenda for today including taxes, transportation and bonding.

Since most of the negotiations have been going on behind closed doors – leaving the public, the media and lobbyists out of the legislative process — we have little indication of what will be included in the final bills.

If you have not done so already, now would be an excellent time to respond to this CGMC Action Alert by contacting your legislators and Gov. Dayton to urge them to include a significant increase in Local Government Aid in the final tax bill.

The environmental bill is one of the few bills that passed on Sunday and is now expected to be signed into law by the Governor. Unfortunately, due to continuing opposition from the Governor and the Minnesota Pollution Control Agency, many of the significant environmental reforms sought by the CGMC were stripped from the final bill, including our call for independent peer review of proposed rules and a prohibition against the enforcement of unadopted rules. On the plus side, the bill includes our request to extend the public comment period for new city permits to 60 days (up from 30 days) and also includes some policy changes regarding the Impaired Waters List.

As for the jobs bills, which passed early this morning and is also expected to be signed by the Governor, it contains several priorities that are important to rural communities:

  • The Job Training Incentive Program is funded at $2.7 million per biennium for 218-19 and 2020-21
  • The Border-to-Border Broadband Broadband Development Grant Program is funded at $20 million
  • A workforce housing grant program within the Minnesota Housing Finance Authority will receive $4 million per biennium for 2018-19 and 2020-21
  • The Greater Minnesota Business Development Public Infrastructure program (BDPI) gets $1 million for the 2018-19 biennium (excluding a $1.6 million earmark in FY 18) and approximately $3.6 million for the 2020-21 biennium. The BDPI program is funded in the proposed bonding bill as well.
  • The Minnesota Investment Fund is funded at $25 million per biennium for 2018-19 and 2020-21
  • The Job Creation Fund receives $17 million for the 2018-19 biennium and $16 million for the 2020-21 biennium

For updates as this final day of session proceeds, please follow us on Twitter (@greatermncities), Facebook and our website (greatermncities.org.)

For Immediate Release: Feb. 28, 2017
Contact: Julie Liew, jlliew@flaherty-hood.com

Below is statement from CGMC President and Alexandria Mayor Sara Carlson regarding this morning’s announcement that the state’s budget surplus has increased to $1.65 billion.

“With this new budget forecast, the Legislature and Governor have no excuses for not passing a $45.5 million increase in Local Government Aid this year. The state’s economy is clearly flourishing and there is strong bipartisan support for an LGA increase, so it’s a no-brainer that this is the year to make it happen.

“LGA is the single most important state program to help communities hold down property taxes and pay for key city services that affect all of our residents and businesses. The CGMC’s top priority this legislative session is bringing LGA funding back up to its 2002 benchmark. A modest increase of $45.5 million will get us there. With today’s budget announcement there is no reason why our rural legislators can’t use their influence to make this LGA increase happen this session.”

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On Wednesday, the Senate Taxes Committee heard testimony on the $300 million tax plan Governor Dayton proposed last month. The broad-ranging proposal includes a $20 million increase in LGA.  While a $20 million increase would be a step in the right direction, the CGMC’s top priority continues to be restoring LGA to its 2002 funding level, which would require an increase of $45.5 million.

CGMC lobbyist Bradley Peterson testified in front of the committee. Peterson thanked the Governor and legislators for recognizing the vital role LGA plays in allowing cities to provide essential services like fire and police, and helping to hold down local property taxes. However, he made clear to the committee that the conversation on LGA increases should begin at $45.5 million, not at $20 million. He urged the senators to support legislation proposed by Sen. Bill Weber (R-Luverne) that would fully restore LGA to its 2002 level over the course of two years. Weber’s bill, SF 476, has been referred to the Senate Taxes Committee. The House version of the legislation, HF 672, was introduced by Rep. Paul Anderson (R-Starbuck), with broad, bi-partisan support.
 
The CGMC will continue to advocate for a substantial increase in LGA funding, and will make clear to the Legislature that the 2017 session cannot be considered a success unless they pass a comprehensive tax bill that includes additional LGA funds.

Each election season, the CGMC provides background information to help candidates become familiar with issues affecting Greater Minnesota communities. The CGMC does not endorse candidates running for political office, but we think candidates should be well-informed about issues are important to Greater Minnesota cities.

Therefore, we have prepared “Elections 2016: Greater Minnesota’s Top Issues” to provide information about several key issues: property taxes & LGA, state budget, transportation, annexation & land use, economic development, and environment & energy. This informational packet was mailed to all of the registered candidates who are running to represent Greater Minnesota districts in the Minnesota House or Senate.

If you have any questions about the information provided in the packet, or if you would like us to mail a hard copy to you, please contact Bradley Peterson at bmpeterson@flaherty-hood.com.

With the failure of the bonding and transportation bills, several of the CGMC’s top priorities were not addressed this session. We are still holding out hope that the Governor may call a special session to address bonding (see more on this in the articles below), but at this point it is difficult to guess whether that will happen.

So how did the CGMC’s priorities fare this session? Click on the links below to see charts outlining the fate of our top issues:

In a flurry of deal-making, shouting and general mayhem, the 2016 legislative session came to a close amid a level of chaos unusual even for the final days of a legislative session. Here’s how the four mains bills (taxes, bonding, supplement budget and transportation) fared:

TAX BILL
As expected, the Omnibus Tax Bill passed both House and Senate on Sunday with large majorities in voting in favor of the bill. The bill includes a $20 million increase in LGA. The LGA run reflecting this increase can be found here. The Governor has not committed to signing the bill yet, as he has concerns over a significant tobacco tax reduction contained in it. The Governor has 14 days to decide whether he will sign the bill.

In response to the tax bill, we issued this statement to the press from CGMC President Bob Broeder, in which we express that even though the increase was not as high as we were hoping, we are pleased that the Legislature was able to reach an agreement and provide a boost in LGA funding.

In addition, Mayor Broeder asked us to pass along the following message from him to all of our members:

Thank You to all CGMC members and F & H staff for all your efforts in prompting action so this was a “Do Something ” Session. – Mayor Bob Broeder, President CGMC

BONDING BILL
By now you have probably heard that the bonding bill did not pass. All day yesterday it was clear that negotiations were continuing on the bill. With less than an hour until the midnight deadline, a bonding bill materialized on the House floor that appeared to be an agreement between the House and the Senate. The bill included numerous local projects from around the state and the usual dollars for higher education and state agencies to maintain their assets. The bill also included two of CGMC’s highest priorities: $133.5 million for clean water infrastructure and $12 million for the Greater Minnesota Business Development Public Infrastructure (BDPI) Grant Program. In addition, there was almost $200 million in funding for various Corridors of Commerce projects as well as other items related to transportation.

The bill was hastily passed off the House floor with only minutes to go and then sent to the Senate. Upon arrival in the Senate, Sen. Ron Latz (DFL-St. Louis Park) tried to add an amendment that would have allowed additional local bonding authority for transit. Amid procedural confusion and a ticking clock the Senate passed the bill with Sen. Latz’s amendment. Because the bill was amended by the Senate, it needed to go back the House for final approval. However, by that time the clock had turned past midnight, the House had adjourned and the session turned into a pumpkin.

There is great speculation about whether Gov. Dayton will call a special session for the specific purpose of completing a bonding bill. CGMC sent a press release and Action Alert encouraging the Governor to call the Legislature back so that important projects would not be stalled. The Governor held a press conference today, but he gave no indication whether he plans to call a special session.

SUPPLEMENTAL BUDGET
The Supplemental budget bill also passed both bodies late Sunday night. Legislators were given little time to digest the 599-page bill and all the spending and policy contained in it. The bill includes $35 million for broadband, but the policy language is written in a way that is unlikely to work for most cities. The bill limits the amount of funds available to cities with some — yet poor — service, and it also allows telecom companies that are already operating in the area to block new projects if they meet or promise to meet minimal standards.

COMPREHENSIVE TRANSPORTATION BILL
R.I.P. 2016

We are now down to 8.5 hours until the midnight deadline for the Legislature to pass bills. Legislative leaders still appear to be trying to hatch deals on the remaining bills, but at this point it is anybody’s guess whether they can manage to reach agreements and pass the bills through the House and Senate before the day ends.

After the session officially ends tomorrow, CGMC staff will further analyze the bills that pass (and those that don’t) and provide our members with a more detailed report on how our top priorities fared this session.

TAX BILL
The House passed the tax bill, which includes a $20 million increase in base funding for LGA, earlier this afternoon. It is anticipated that the Senate will vote on the bill later this afternoon or early this evening.

Do we think it will it pass by midnight on Sunday? It’s very likely.

BONDING BILL
There is not much news to report on the bonding bill since the Senate came out with an updated $1.4 million bill yesterday. The House still has not released a counter-offer. There is speculation that the bonding bill might end up including transportation funding and provisions. As of now, the House and Senate still remain $600 million apart on bonding. House Speaker Kurt Daudt told reporters this afternoon that he is confident that both a transportation bill and bonding bill will pass.

Do we think it will it pass by midnight on Sunday? Although the clock is ticking, it is still likely.

TRANSPORTATION
There is no news to report on the transportation bill, other than Speaker Daudt’s expression of confidence that a bill will pass tonight.

Do we think it will it pass by midnight on Sunday?  We’re not holding our breath.

SUPPLEMENTAL BUDGET BILL
The conference committee just agreed upon a bill. It includes $35 million in broadband funding, but unfortunately also includes problematic language which will give the telecom industry more influence over who receives a grant and make it more difficult to access the fund.

Do we think it will it pass by midnight on Sunday?  Chances are good.