Welcome to the end of session review.
The session began with a $1.65 billion surplus. the structural balance of the state budget was something that remained at the top of mine and my colleagues minds this session and throughout the days-long special session. Minnesotans expect their legislature to be accountable, accessible, and to complete their work on time, but these values have not been the hallmark of this session and special session. In the days leading up to the end of the regular session, the work of the legislature ground to a halt as Governor Dayton attempted to negotiate budget deals with Republican majorities in both legislative chambers. A few smaller budget bills, including agriculture and economic development, were passed in the wee hours of Monday morning. As the hours ticked by, agreements on major budget bills, including more than 70% of the budget remained unresolved, resulting in a three day special session.
Governor Dayton and DFL legislators’ criticisms of the first set of budget bills were widespread. Not only did the bills include a total of 609 controversial policy provisions, but the first budget bills would have set Minnesota on a path to budget deficits in as a little as four years.
Most budget areas received drastically low funding, which would have resulted in across-the-board budget cuts to schools, state parks, road and bridge funding, the state’s most vulnerable including children, elderly, and people with disabilities.
The significant and unnecessary cuts to budget areas are all the more puzzling at a time when the state has a surplus. The education budget came in at a paltry $300 million, less than half of Governor Dayton’s budget proposal.
Another key hallmark of the 2017 Legislative Session was discussion about providing health insurance premium relief to Minnesotans who purchase their health insurance on the individual market. In an attempt to stem the rate hikes, a premium relief bill spending $300 million was passed near the beginning of session. A second health insurance bill creating a “reinsurance pool” was passed during the middle of session. The bills were a $600 million handout to health insurance companies with absolutely no requirement that they make their rates more affordable or expand provider networks across the state. Additionally, the reinsurance program is just a two-year, temporary Band-Aid, that to maintain will require hundreds of millions of dollars after two years.
Sincerely,
John Hoffman
What passed?
Education Budget
The Special Session Education Omnibus bill provides an additional $483 million in new funding for Minnesota school districts for the next two years. The bill provides a 2% increase each year in the basic funding formula, $50 million in one-time funds for a new pilot early education program, repeals teacher employment and layoff protection, provided reforms for the Perpich Center for Arts board, and keeps the school open and closes and sells the Crosswinds School in Woodbury.
Basic Funding Formula Increases
The bill appropriates $371 million for the biennium, or 2% each year on the basic funding formula, providing $121 (FY18) and $124 (FY19) per student in new money each year. This equals the amount the Governor proposed in his two-year budget. Despite the funding increase, school districts will still struggle to cover costs as the bill does not provide additional funding for special education costs or to cover the increased cost of staff pensions, both proposals recommended in the Governor’s budget.
Voluntary PreK and Early Education Programs
The bill provides $50 million in one-time funding for a new early education pilot program called School Readiness Plus. The Governor originally requested $175 million to expand his signature free, voluntary PreK program.
Schools will be ranked by concentration of poverty, with funding allocated under the pilot School Readiness Plus program. Districts will be able to choose if they want to participate in Plus to Voluntary PreK. Those students qualifying for reduced-priced lunch will generate aid for programs and will be admitted free of charge. Unlike the current PreK 4, all other children will be required to pay.
Pathway 2 scholarship funding is frozen at 2017 levels. Pathway 2 scholarships are used only for school-based early ed programs, meaning that public school programs will lose out on early education dollars.
Early Learning Scholarships
The early learning scholarship program will get an additional $21.6 million boost to it $100 million program. However, there needs to be additional policy regarding scholarship eligibility requirements to ensure high quality early education programs which been delayed for six years.
Perpich Center for Arts Education
The Perpich Center for Arts Education will remain open, but the special session agreement changes Perpich Board and school requirements. The MDE commissioner will become a non-voting board member, the school’s executive director must be a school superintendent, all Perpich teachers must be licensed, the board must publish all meeting minutes, and an annual report is required to the legislature on arts outreach and enrollment.
The Crosswinds School in Woodbury, which was transferred to the Perpich Board in 2014, will be closed and sold.
Teacher Layoff Requirements
The bill changes unrequested leaves of absence (ULA) laws so that school boards and teacher bargaining units must, rather than may, negotiate plans for providing unrequested leaves of absence (layoffs) without pay of fringe benefits. The bill deletes language that said a negotiated plan cannot include provisions that would result in layoffs being based on seniority or reinstatement of a teacher holding a provisional license. Although not as expansive as the changes proposed in 2015, there is last-in, first-out (LIFO) statute changes that will affect teachers and school layoff provisions across Minnesota. This could also bring increased administrative costs due to the new mandate.
Compensatory Funding Changes
Compensatory funding for Anoka Hennepin and Osseo schools have been part of that pilot. The bill maintains provisions that require increases in compensatory funding beyond this FY17 be used for only extended time school programs, a provision that was not made by the bipartisan Education Finance Working Group in 2012. This move cuts school flexibility and local control to provide the proper programming to meet students’ needs. The bill also makes the compensatory pilot programs for eight school districts permanent.
Teacher Licensure Bill
House File 140 created a new Professional Education Standards and Licensing Board (PELSBE) and created a four-tier teacher licensing system. The bill was vetoed by the Governor because the bill did not contain the proper funding to transfer board powers and to design the system. House File 2 provided the funding ($3.5 million). The Governor also objected because the licensure tier requirements did not ensure well-prepared quality teachers would be placed in Minnesota classrooms. Changes were made to include cultural competency training for Tiers 1 and 2, but Tier 1 requirements still do not ensure adequate teacher quality.
The bill also requires the PELSBE to review all special education licenses and determine options for cross-categorical licensure and requires the current Board of Teaching to amend Board rules on issuing and renewal of Academic and Behavioral Strategist (special education) licenses. This provision will be challenged as under federal law you must assure the unique needs of a child and their disability is addressed how it affects their education. That is the categorical need.
Transportation Budget
The bill provides $747 million of new revenue for Minnesota’s transportation system. Of the $300 million shifted from the general fund in 2018, only about $204 million of this goes to roads. The remaining $96 million is used on other priorities in the biennium. This money, as shown throughout the negotiations process with the moving target numbers, is not a reliable source of funding. The shift can be taken away easily during any budget crunch. The amount of road funding is inadequate to meet the needs that both DFLers and Republicans agree upon – $400 million a year to maintain our current assets and $200 million to make strategic improvements; $600 million total a year is needed to meet the needs of our state. The bill allocates $70 million to the Met Council for FY2018-19, which leaves the agency with a $15 million funding gap. This will likely mean cuts to service or fare increases in order to make up for the lack of funding. Unfortunately, this bill does not do anything for the agency and its forecasted $110M budget hole in the next biennium.
Other notable provisions include:
- A new $75 fee on electric vehicle purchases
- Increased truck weight permits for road construction materials and mining truck tires
- A provision that takes away the 50% operating subsidy for Southwest Light Rail
- Names a portion of Hwy. 52 the “Sen. Jim Metzen Memorial Highway”
- Requires MnDOT to implement 15% efficiencies above their appropriation for the biennium
REAL ID
The Legislature passed a REAL ID bill that will allow Minnesotans to board domestic flights without needing additional documents like a passport. Minnesotans were coming down to crunch time as the next compliance deadline was January 2018. There is no unnecessary immigration policy included in the bill. The department will have to begin issuing REAL IDs by October 2018.
Law Enforcement Memorial License Plates
The Legislature passed a bill creating law enforcement memorial license plates. The additional proceeds from the plates will go to the Minnesota Law Enforcement Memorial Association.
MnDOT Project Selection
There were three bills heard in the Transportation Committee that would require MnDOT to increase transparency on how the department selects which projects it completes. The bills generally require that the department, in consultation with relevant agency stakeholders, develop, adopt, and implement best practices for project evaluation and selection processes. The commissioner must publicize the process criteria so the public can better understand and compare the selected projects to those that were not funded.
The bills are in response to complaints over the years of a lack of transparency in how MnDOT selects its projects. The Office of Legislative Auditor released a report in 2016 about the department’s highway project selection. Some key recommendations were that MnDOT should increase the transparency of its decision-making process, particularly by providing information to enable comparisons between projects that are selected and those that are not.
Taxes
In January, Governor Dayton proposed $280 million of tax relief for Minnesotans. He focused on targeted relief for Minnesotans not yet experiencing the economic recovery and those struggling to make ends meet. The Senate majority proposed a $900 million tax bill, and the House majority passed a $1.35 billion tax bill. In early May, the legislature independently passed a $1.13 billion tax budget with no public testimony, which was promptly vetoed.
More than half of the first two tax budgets benefited the wealthy and corporations. Governor Dayton insisted on more targeted tax relief for individuals and a smaller cost that would not burden future state budgets.
The legislature and Governor Dayton agreed to a $657.9 million tax bill for the 2018-2019 biennium and passed it in the May 23 special session. The bill still spends $772.4 million in 2020-2021 and its costs continue to grow, a lingering cause for concern. Highly controversial private-school voucher language from previous bills was removed from the final agreement, but tobacco tax cuts were retained. Although much of the tax relief had bipartisan support, I remain concerned about the imbalance of wealthy taxpayers and big businesses receiving a majority of the tax benefits in the bill, while relief for average Minnesota families remains rather small.
Social Security
Nearly half of Minnesota households do not currently pay taxes on their Social Security benefits, but those that do now will qualify for up to a $4,500 tax subtraction ($3,500 single). Married couples earning between $32,000 and $115,300 in provisional income and single filers earning between $25,000 and $90,100 could qualify. Provisional income is Adjusted Gross Income plus one half of Social Security benefits.
Student Loans
Graduates working to pay off student loans are eligible for a new, $500 tax credit – a first-in-the-nation credit. A provision for higher benefits for teachers and those serving in public service jobs was unfortunately is not part of the final agreement. The credit is the lesser of $500 or: loan payments minus 10% of income over $10,000, earned income for the year, or the sum of loan interest payments plus 10% of the original loan amount.
Estate Tax
Minnesota’s estate tax exemption threshold is increased from $2 million to $3 million, phased in over the next four tax years. About 1,100 taxpayers are subject to the estate tax. Small businesses and farmers already have a $5 million exclusion in current law so this bill does not provide additional relief beyond what is already available to those taxpayers.
Business Property Tax
The first $100,000 of commercial/industrial market value is excluded from the statewide business property tax. In addition, the annual inflation factor is removed. According to the Minnesota Tax Incidence Study, 53% of the statewide business property tax is paid by non-resident corporations, meaning most of these tax reductions go to companies not headquartered in Minnesota. The cost to freeze the levy also grows dramatically in the future – $192 million by 2020-2021.
Beginning Farmers
New tax credits to help beginning farmers are included in the final tax bill. Current agriculture land owners may apply for up to $5 million in tax credits available, equal to a percentage of the sale or rental price of transferring agricultural assets to beginning farmers. Beginning farmers (someone with up to 10 years farming) will be able to access a new tax credit for participating in an approved financial management program, equal to 100% of program costs for up to three years of participation.
529 Savings Plans
The final tax bill included a provision from 2016’s tax bill, which would provide tax incentives to families saving for their children’s higher education. Those making contributions to 529 college savings plan accounts may be able to access a $500 nonrefundable credit as well as a maximum $3,000 tax subtraction for a portion of those contributions.
Dependent and Child Care Credit
Minnesota has some of the highest child-care rates in the nation. This year’s tax bill takes the Governor’s proposal to increase the current Dependent Care Credit to make childcare more affordable for more families. The income eligibility phase-out now will begin at $50,000, rather than $39,400 under current law.
High School Tournament Ticket Sales
Democrats have been working to revive a sales tax exemption on Minnesota State High School League admission sales for several years. This year’s bill includes the exemption for tickets sold to games, events and activities sponsored by the MSHSL. Savings are transferred to a nonprofit charitable foundation to promote high school extracurricular activities.
Federal Tax Conformity
Congress typically makes several changes to federal tax code toward the end of most tax years. Until states take action to update their tax codes to match federal law, taxpayers face confusion and, often times, higher tax bills. This year a conformity bill passed that delivered $21 million in tax relief to at least 220,000 Minnesotans.
This year’s bill was particularly important because it included updates from Tax Years 2015 and 2016. Taxpayers filing 2016 tax returns this spring don’t need to act – the updates are included in state tax forms. Constituents that may be affected by Tax Year 2015 updates will be contacted by the Department of Revenue later this year. No one will owe more taxes, but as many as 178,000 taxpayers will be owed additional refunds. In most cases, no action will be required by taxpayers to receive this money.
Some of the groups most likely to see additional refunds include taxpayers with tuition costs, educators with classroom expenses, homeowners paying mortgage insurance premiums, business owners, and taxpayers receiving the Working Family Credit.
Health and Human Services Budget
The health and human services budget provides funding for the Department of Human Services, Department of Health, and many health-related boards. The bill uses payment and policy delays to push nearly $200 million five years down the line, funds ongoing programs with one-time money, and uses budget tactics that would typically be used during a time of budget deficit. The first HHS budget bill was vetoed because of significant cuts. Though this bill is more fiscally sound, it relies heavily on the Health Care Access Fund, which puts MinnesotaCare and other state health programs at risk.
Child Care Assistance
The bill includes savings of $14.1 million from the child care assistance program (CCAP) integrity modifications a recommendation from the Governor and increases funding for the program by $18.6 million. This program helps families access high-quality child care.
St. Peter Security Hospital Staffing
The bill increases funding for the Minnesota Security Hospital by $22.9 million to help ensure the safety of treatment staff and maintain the state’s ability to assure quality, clinically sound care to some of Minnesota’s most vulnerable individuals.
For-Profit HMOs
The Senate majority decided to allow for-profit insurance companies to join Minnesota’s health insurance marketplace, allowing nonprofit HMOs to keep taxpayer dollars if they decide to convert to for-profit HMOs. This bill places a moratorium on HMO nonprofit conversion until July 1, 2019.
Reinsurance
A bill that spends nearly $543 million over two years on a proposal intended to stabilize Minnesota’s individual health insurance market has become law in Minnesota. The goal of the new reinsurance law is to remove high-cost, high-risk enrollees from the individual market to keep rates low for the remaining individual market enrollees. The law gave $543 million to insurance companies to help pay for these high-cost claims, but without any assurance from those companies to make rates more affordable or expand provider networks across the state.
Under the new law for the 2018 insurance year, when an enrollee reaches $50,000 in insurance claims, 80% of claims would be paid by the state’s reinsurance program until those claims hit $250,000. After 2018, the program board will set the payment parameters with an attachment point of at least $50,000, a coinsurance rate between 50% and 80%, and a reinsurance cap of $250,000 or less.
Minnesotans need health insurance reforms that will offer the state long-term stability. This is another “fix” by the current Senate majority that costs $543 million and only provides temporary relief for two years. While the goal of the legislation is well-intentioned, this proposal takes more than $400 million in funding from the Health Care Access Fund (HCAF), a fund intended to be spent on health care for low income Minnesotans, to help insurance companies.
Health insurance premium assistance
Early this session, a bill was signed into law to provide immediate relief to Minnesotans who are struggling with increased health insurance premiums. The bill reduces 2017 health insurance premiums by 25% for Minnesotans, regardless of their income, who purchase their insurance on the individual market and do not receive federal tax credits. The new law is reducing the average premium increase facing Minnesotans in the individual market from 55% to 16%, and some families are saving as much as $594 per month on their premiums.
Under the law, the 25% subsidy is retroactive to January 2017. $312 million was appropriated for the premium relief from the budget reserve account and $157,000 was appropriated to the Office of the Legislative Auditor for the purposes of auditing the premium assistance program.
Additionally, the new law includes several health insurance market reforms. One reform measure that is the most troubling to many senators is a provision to allow for-profit HMOs to operate in Minnesota. This drastic change could have significant impacts for rural and smaller hospitals and medical providers. For-profit HMOs exist to make a profit for their shareholders, while looking out for the best interests of their members comes second.
Bonding
Governor Dayton submitted his proposal to the Legislature for consideration early in the legislative session. His proposal for general fund (GF) supported debt topped out at $1.49 billion. In comparison, the Minnesota House failed to pass their most recent iteration of a bonding bill which totaled $800 million in GF supported debt.
The Senate’s original proposal was higher relative to the House proposal; it totaled $972 million in GF supported debt. The Senate had its proposal to the floor by early March, while the House’s proposal reached the floor with less than a week remaining. As a result of the bonding bill needing to be a House File, the Senate was unable to send its bill to the House. Additionally, bonding bills need a super majority to pass in both the House and Senate while meeting the demands of the Governor to earn his signature.
As a result, the bonding bill was tied up in budget negotiations until the last night of the special session. Legislators passed a $987.9 million bill because of the important projects that need to be funded across the state. A secondary benefit of extending the lifecycle of our buildings and assets are the thousands of Minnesotans who will be employed and earning paychecks that will be spent in communities across the state.
I am most happy with two important bills I chief authored benefiting our communities. There is 14.1 million for a grant to Anoka County for environmental analysis, design, engineering, and construction of a rail grade crossing separation at Anoka County State-Aid Highway 78, which is also known as Hanson Boulevard, in Coon Rapids. In addition there is 3.1 million for a grant to the city of Champlin to dredge and remove sediment and for other improvements to the Champlin Mill Pond. The aim is to improve water quality, restore fish habitat, and provide a recreational area.
Higher Education Budget
The second higher education conference committee report provided a $210 million budget increase over base appropriations for the Office of Higher Education, University of Minnesota, and MnState systems. The second-round budget target agreement provided $110 million more than the original Senate target of $100 million and $85 million more than the bill vetoed by the Governor.
The bill was still well below the Governor’s original $318 million higher education request and well below the requests made by the U of M ($147.2 million) and MnState ($178 million).
Those opposed to the bill argued that the budget target was too low and provided an inadequate investment in the state’s higher education system. Opponents also argued that the split between the University and MnState funding was unbalanced; of the total increase, MnState received 66% of the system funding and the U 33%. In the past, that funding was closer to a 53-47 split. (SF943)
Office of Higher Education
The 2018-19 budget includes $516.5 million in additional funding for the Office of Higher Education to carry out agency functions and programs.
OHE programs funded:
- Spinal Cord and Traumatic Brain Injury research grants: $6 million (FY18-19)
- Large Animal Vet Loan Forgiveness: $750,000
- Grants to teaching candidates: $1 million
- Campus Sexual Assault Reporting: $50,000
- Child Care grants: $20,000 over base
- Campus Sexual Violence Prevention and Response Coordinator: $300,000
- Summer Academic Enrichment: $50,00
- Grant to Loan Repayment Assistance Program (LRAP) $50,000 for loan debt relief to attorneys providing legal advice or assistance to low-income residents.
- Students with developmental disabilities grants: $400,000
- Homeless Student emergency assistance: $350,000 (FY18-19)
- Minnesota Life College: $2 million
MnState
The MnState system received a $106 million funding increase for the coming biennium, about $72 million less than their initial request. The funding provided is about $44 million less than the Governor’s request.
The funding provided will go to the following:
- $91 million for campus support
- $1 million for workforce development scholarships
- $8 million for replacement of Integrated Statewide Records System (ISRS)
- $120,000 for Cook County Higher Education Board
- $100,000 for HealthForce Development
University of Minnesota
The University of Minnesota received a $54 million appropriation fund:
- $27.95 million for Operations and Maintenance (Core Mission)
- $14 million Health Training restoration
- $8 million for MnDrive
- $1 million assistance for academic programming for students with intellectual and developmental disabilities at the University Minnesota-Morris
- $376,000 transfer from Bell Museum
State Grant Program
The state grant program provides tuition assistance for lower- and middle-income students to attend college. The conference committee agreement provided an additional $36 million for the biennium, which was well below the $62 million request made by the Governor. The additional funding is significantly more than the original Senate appropriation of $10 million.
Student and Family College Payment Requirements
The “assigned family responsibility” (AFR) percentages, which determine how much a student and their family should pay for college costs, decreased in the bill, meaning potentially more students will be eligible for more assistance. All AFR percentages decreased by 10%. For dependent students, the AFR is now 84% of parental contribution; for independent students with dependents other than a spouse the AFR is 76% of student contribution; and for independent students without dependents other than a spouse, the new AFR is 40% of student contribution.
Developmental Education Reform Requirements
MnState must create a plan to reform developmental education offerings on system campuses aimed at reducing the number of students placed in developmental education courses. The Office of Higher Education must post on its website developmental education data on Minnesota high school students attending public post-secondary institutions. Information required includes the number of students placed in supplemental or developmental education, the number of students who completed such programs in one academic year, the number of students who complete gateway courses in one academic year, and the time to complete a degree or certificate at post-secondary institution.
Two-Year Outstate Institution Grants
A new program provides $6 million in supplemental funding for two-year institutions not located in a metro county to enhance programs options outside the metropolitan area.
Tuition Freezes Without Funding
The vetoed bill froze tuition for MnState four-year schools and called for a 1% tuition reduction at MnState two-year schools. Although a good talking point, there was not enough money to pay for the freeze or reduction. The bill was poised to hurt basic programs because there was not adequate higher education investment to help schools make up for the inadequate investment. The tuition freeze policy would cost MnState $143 million in FY18-19. The U of M is “requested” to freeze tuition.
The second conference committee report changed the language somewhat, allowing MnState to increase differential (specific departmental programs) tuition charges in 2018 and 2019 under “extraordinary circumstances”, which was not defined in the bill. The bill permits the U of M to set all resident tuition rates for 2018-19 at levels not greater than the 2017-18 rates.
Despite these changes, there is still potential for program cuts, increased class sizes, and staff layoffs relating to the tuition freeze and inadequate investments.
Mandatory Student Fees
The bill prohibits mandatory fee increases of more than 2% and requires MnState and the University of Minnesota to put any student fee increase of more than that amount to a campus referendum. Language in the bill requests U of M to do the same. If U of M fees increase by more than 2% without approval, their appropriation base will decrease by 1% in FY18.
If you have any questions or concerns feel free to call my office at 651-296-4154 or by e-mail at jhoffman@senate.mn
