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2010 Legislative Roundup: Minnesota

This year marked another contentious legislative session for Minnesota, marked by gubernatorial vetoes and tough negotiations over the budget and healthcare.  In the end, Gov. Pawlenty vetoed twenty bills, bringing his eight-year total to 96. This year's vetoes included a wide range of measures, from a bill enabling same-sex partners to make end-of-life decisions, to a medical marijuana bill, to a bill that would have supported local government and non-profit innovation efforts.  Painful budget cuts and cost deferrals left the state's financial picture for 2012 and beyond uncertain, but legislators did manage to move important measures on broadband, energy conservation, and consumer protection, as well as a billion-dollar bonding measure that will create some jobs to cushion losses in other areas.

Budget Showdowns:  Budget negotiations this year were complicated by an unprecedented measure taken by Gov. Tim Pawlenty in 2009 to “unallot” $2.7 billion in appropriations for the 2010-2011 biennial budget.  Minnesota law empowers the governor to unallot expenditures from an approved budget under extenuating circumstances (e.g., underperforming revenue or unanticipated expense increases).

In a test of executive power, Pawlenty issued a line-item veto on a tax increase he did not favor, then vetoed the entire budget bill due to an “unresolvable” funding gap.  Rather than call the legislature back into session to redraft the budget, Pawlenty used the emergency powers of unallotment to make the unilateral spending cuts.  In May, one of the unallotments was struck down in court, opening the door to challenges against the rest of the 2009 disappropriations.

The case further complicated legislators’ work in 2010 by forcing them to deal with the unallotments and re-balance the budget.  Pawlenty objected to the legislature's proposal to balance the budget with spending cuts and modest tax increases.  In its final form, the 2010-11 budget ratifies most of Pawlenty’s original unallotments, as well as further spending cuts and deferrals.  Although the cuts reduce spending in the current budget by $2.9 billion, $1.5 billion is in deferred payments which must be covered in the next budget.

Among the spending cuts included in the final budget is $364 million in aid to municipal governments – only $18 million of which is in deferred payments.  This significant decline in funding will inevitably diminish the quality of local government services.  As the Economic Policy Institute recently reported, forcing local governments to cut jobs in this way will increase unemployment and make it harder for local economies to recover.

Jobs and Consumer Protection:  Two measures passed by the legislature will provide some relief to working families, through a combination of job creation, assistance to the unemployed, and regulation of mortgage lenders and property appraisers.

  • Bonding Bill:  The legislature passed HF 2700, a $999.6 million bonding measure which will invest in higher education, roads and bridges, housing, employment and economic development, and other areas.
  • Jobs & Tax Credits Bill (HF 2781/ SF 2510):  The legislature passed an omnibus employment and economic development bill which, among other things:
    • Grants local governments the authority to provide financing to property owners for energy conservation improvements and to collect repayments as special assessments.
    • Enacts the Minnesota Secure and Fair Enforcement for Mortgage Licensing Act of 2010 ("SAFE Act"), which directs the Department of Commerce to license and regulate residential mortgage industry employees and to participate in the Nationwide Mortgage Licensing System and Registry.
    • Enhances consumer protection with regard to insurance policies, particularly by regulating licensure of real estate appraisers and insurance products for cell phones and other portable electronic devices.
    • Amends the state unemployment insurance program by extending state benefits an additional thirteen weeks, defines employment through staffing service agencies for the purposes of determining eligibility for unemployment benefits, and sets unemployment insurance tax rates for new employers. The measure also creates a rapid response program for working with businesses planning on relocating their facilities and penalizes employers who make offers of employment to an applicant when, in fact, there are no jobs available.
    • Appropriates funds for additional tax compliance activities expected to result in new general fund revenue beginning in fiscal year 2011.

Health Care:  Gov. Pawlenty’s veto of the legislature’s original budget proposals prevented the state from enacting any firm plans to shore up funding for medical care programs that serve extremely low-income adults.  To cope with budget cuts, the federal government extended the state an opportunity to shift some residents from the state-run General Assistance Medical Care insurance plan to Medicaid early (most other states can expand Medicaid starting in 2014).  The move would have enabled the state to maintain coverage while sharing the costs with the federal government through $400 million in matching funds.  The Governor objected to accepting the funds, but the legislature kept the door open by including an option for the next governor to reverse that decision.

Education:  The state’s higher education system is one of the programs most severely affected by the budget cuts.  With $147 million in cuts and unallotments, higher education funding is now at 2006 levels.  According to the Minnesota Budget Project, most students will have their state financial aid reduced by 19% and 9,400 students will lose their state grants altogether.

At the K-12 level, in addition to the budget issues, the session was marked by battles over teacher training and licensing in the name of “reform.”  Several pieces of legislation included provisions to weaken certification requirements, in order to expand Teach for America and other programs.  One measure would enabled people with non-teaching degrees to become teachers with only five weeks of preparatory training.  Pro-public education legislators and advocates were able to prevent all of the measures from passing, but the session ended without any positive education policy passing, either.

Energy, Broadband, and Environment Legislators were able to pass strong legislation on energy, broadband and the environment.  Among the most positive achievements of the session included:

  • Passage of the universal broadband bill (HF 2907), which will improve broadband speeds for all Minnesotans ten-fold and extend service to the 6% of households that still have no broadband access, all by 2015.  The law also includes a goal of making sure the state ranks in the top 5 nationally for both broadband speed and access, and within the top 15 when compared to other countries. The law does not include a funding mechanism for build out of the necessary infrastructure, although legislators are considering imposing a fee on existing broadband customers.
  • The legislature adopted the Complete Streets policy as part of a larger Omnibus Transportation Policy Bill (SF 2540).  The policy will reduce air pollution through more comprehensive street planning. 
  • An Omnibus Environment, Energy and Natural Resources Policy and Finance Bill and Outdoor Heritage Appropriations (SF 3275) bill updated and revised a wide array of environmental and natural resource programs and statutes.  The bill also includes several measures that promote investment in renewable energy and green jobs:  creation of a rebate program for solar panels manufactured in Minnesota; inclusion of “green chemistry” as an aspect of the green economy, opening up another sector for investment; increases staff capacity at the Public Utilities Commission; reappropriation of funds to research and development programs for renewable energy technologies; and funding for a community planning process to promote energy conservation and renewable energy in Minneapolis.

Election Reform:  While Gov. Pawlenty vetoed a number of good voting rights measures passed by the legislature in 2009, this year saw some meaningful legislation enacted.  The legislature took a step toward closing the door on unlimited corporate spending in elections (opened by the U.S. Supreme Court's Citizens United decision last fall) by passing SF 2471.  The bill requires disclosure of political expenditures by corporations and unions from their general treasuries, increases the number of reporting periods, conforms state law to the Citizens United decision, increases penalties, and requires a disclaimer on all campaign materials disclosing who paid for the ad and what candidate the ad is in support of or opposed to.  The bill was criticized for not closing a loophole exempting from the disclosure requirements ads that do not expressly call for the election or defeat of a candidate.  Nevertheless, the attorney who won the Citizens United case has already filed a challenge against the new law, representing three clients, one of which is a for-profit corporation. 

The governor signed an omnibus campaign finance bill (SF80), which tightens regulations on party “independent expenditures” and imposes a contribution limit on judicial office candidates for the first time, although it otherwise does not make significant changes: other provisions include updates to contribution limits for Secretary of State and State Auditor and changes to certain filing and disclosure requirements.

A significant mesaure which failed this year was a proposed constitutional amendment to replace judicial elections with a merit-based appointment system (HF 224 / SF 70), partly to head off the possibility of politicizing the judiciary in the wake of Citizens United.  Justices are currently elected to six-year terms in Minnesota.  The measure would have them appointed to eight-year terms, with reappointments decided by non-competitive elections on whether to retain them (so-called "retention elections").  An independent, non-partisan commission would be created to review judges' performance, which would be reported to voters.  The bills were reported favorably out of the initial committees in each house, but the measure died in the House Civil Justice Committee.

Bad Legislation Defeated:

  • Investment Company Tax Credit (SF 2306 / HF 2770):  Criticized as an inefficient and likely unsuccessful program, this bill would have granted a 25% credit against insurance premium tax liabilities for Certified Capital Companies (or CAPCOs) which invest in certain Minnesota businesses.
  • Suspension of prevailing wage on bonding projects.
  • Removal of defined benefit pension plans for state employees.
  • Elimination of requirement to use public employees in Office of Enterprise Technology data centers.
  • Immigration:  Legislators managed to bury an anti-immigrant bill (HF 3830) which mimicked Arizona's misguided and draconian law, SB 1070.  Significantly, Police Chiefs in St. Paul and Minneapolis issued a statementdenouncing the legislation as a danger to public safety and an obstacle to police doing their job:  "The culture of fear that this bill will instill in immigrant communities will keep victims of crime and people with information about crime from coming forward, and that will endanger all residents."
  • Foreign Corporation Taxes:  HF 3044 would have closed corporate tax loopholes for foreign operating corporations and subjected foreign royalties and income from corporations using tax havens to the same taxation formula as regular business income in the state.  The Department of Revenue estimated that the measure would have resulted in about $440 million in additional revenue from 2011-13.  The bill was laid over for possible inclusion in the omnibus tax bill, but it was ultimately passed over.

Resources:
Conservation Minnesota
Education Minnesota
Immigrant Law Center of Minnesota
Minnesota Budget Project
Common Cause - Minnesota
OutFront Minnesota