2018 Legislative Session: Bonding bill signed into law, no agreement reached on taxes or supplemental budget

By Clark Goldenrod, Nan Madden, and Sarah Orange, Minnesota Budget Project

Each year the Foundation invites a nonpartisan organization to provide an analysis of the Minnesota Legislative Session and the impact legislative decisions will have on vulnerable families and communities. This year, we invited the Minnesota Budget Project to reflect on this year’s session.

The 2018 Legislative Session opened with some major tasks on policymakers’ to-do lists. By tradition, this was a year when policymakers normally put together a capital investment package, commonly called the “bonding bill”, that invests in infrastructure projects across the state. More unexpectedly, the December 2017 passage of the federal tax overhaul raised substantial questions on how to update the state’s tax code in accordance with Minnesota values of fairness and fiscal responsibility. And a projected $329 million surplus created opportunity to make state investments this year, in addition to those made in the two-year state budget passed last year.

However, when the three months of the legislative session came to an end, the Legislature and Governor Mark Dayton reached agreement on only one of the three major items. A bonding bill was passed, authorizing $1.6 billion in projects including transportation, higher education infrastructure, water quality, and affordable housing. But intense disagreement in priorities between Dayton and the Legislature resulted in no final agreement on either budget or tax issues.

The contrasting priorities between policymakers are seen in how they would use the projected budget surplus. The Legislature allocated more than half of the surplus to tax cuts and additional transportation spending, while the governor proposed putting the largest portion of the surplus to education. The Legislature’s final offers to Dayton were contained in a nearly 1,000-page supplemental budget bill and in a tax bill, both of which the governor vetoed.

Our Analysis

We often look at state policy decisions through the lens of whether they build broader prosperity and improve the lives of Minnesotans across the state. By this measure, the outcomes of the 2018 Legislative Session are a mixed bag. Important opportunities to support Minnesotans striving toward economic security were lost. At the same time, harmful proposals that would have put up new roadblocks were stopped. Below are some examples that represent both the opportunities lost and harm prevented to Minnesotans’ ability to get by and get ahead.

Health care: Among the harmful proposals stopped was one to erect new reporting requirements, which would likely result in more than 20,000 Minnesotans who participate in Medicaid losing their health care. But a major lost opportunity was that the Legislature failed to take action to maintain the provider tax, an important funding source for affordable health care for about 90,000 Minnesotans that otherwise will expire in 2020. With this deadline looming, this will be a critical issue for policymakers to address next year. (Additional coverage of health and human services issues can be found on the Minnesota Budget Project’s blog.)

Family economic security: A disappointing lost opportunity was family-friendly improvements to the state’s Child Care Assistance Program supported by both the Legislature and Dayton that will not be implemented this year. These proposals would have helped families maintain their child care even as they faced various changes and challenges, and would have increased funding for child care providers. This is another issue the state will need to pick up next year: Minnesota is out of compliance with federal standards and may face a financial penalty. Another harmful proposal prevented by the governor’s veto was a redundant verification system that would have erected new barriers to struggling Minnesotans accessing health care, child care, or food assistance.

Wage standards: A positive for working people is that a proposal to penalize certain tipped workers by freezing their minimum wages, which had been included in earlier bills, was not included in the final supplemental budget that the Legislature sent to the governor.

Transportation: There is broad agreement on the need to invest in the state’s transportation system, but fierce disagreement about which modes of transportation and how to fund them. Road and bridge projects make up a significant part of the bonding bill, but those Minnesotans who rely on transit to get around were largely left out. The Legislature’s proposed constitutional amendment to increase funding for transportation passed the House but did not make it through the Senate. This amendment, if approved by the voters, would have diverted funding that currently is available for other priorities like education, higher education, and economic development.

Education: While legislators proposed additional funding for Minnesota’s schools, their overall education investments were far below what the governor proposed. Dayton proposed investing $169 million in K-12 Education, including $138 million in one-time emergency funding to fill budget deficits for schools throughout the state through an increase to the basic student formula, as well as funding for pre-kindergarten and special education. The Legislature proposed $28 million in their education budget, primarily for school safety, and $50 million in one-time school funding in their final tax bill. Because of the lack of a final agreement on the budget or tax bills, the only additional education funding enacted this year was some school safety funding in the bonding bill.

Taxes: If the state acted to simply conform to federal tax changes, Minnesotans – including families with children, seniors, and people with disabilities – could have seen tax increases. By the end of session, it appeared policymakers had agreed on an approach to updating the income tax for individuals and families that would have prevented these increases. But there was strong disagreement about what kinds of tax cuts to enact and who would benefit from them. The Legislature’s tax bill would have raised taxes on the most struggling Minnesotans over time, which would help pay for tax cuts that benefit others who were better off. Dayton’s tax plan made working people and their families the priority for tax cuts, for example, through a proposed expansion of the Working Family Credit. Updating the tax code will be another issue policymakers will need to tackle next year. In the meantime, many Minnesota individuals and families will see the amount of income taxes they pay basically unchanged, but the process for filing will be more complicated. But by vetoing the Legislature’s tax bill, Dayton prevented changes that would have made the tax system less fair and would have undermined funding that supports our schools, nursing homes, public safety, and other essential community services.

Infrastructure: The bonding bill invests in things like transportation, higher education infrastructure, and water quality. Importantly, it includes $90 million in bonds for affordable housing, and a vital $28 million for mental health crisis centers, which provide emergency shelter for people with behavioral health needs. The bonding bill also includes $25 million for school safety; unfortunately, some of those dollars come out of the state’s budget reserve, weakening the state’s “rainy day fund” that Minnesotans count on during economic downturns or other budget shocks.

Next year, the state will have a new governor and a new legislative makeup following statewide elections this November. Policymakers will have another crack at many of the issues they wrestled with this session, while also adapting to leadership changes. They’ll also need to put together the state’s next two-year budget. Under current economic and budget projections, Minnesota would expect to have about a $300 million projected surplus at the start of the next biennium. That’s money that we believe should be invested in building a broader prosperity that reaches all Minnesotans.

 

The Minnesota Budget Project, an initiative of the Minnesota Council of Nonprofits, identifies and promotes public policies that expand economic security to all Minnesotans, regardless of who they are or where they live.

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