Here are the big updates following the Minnesota's legislative adjournment.
Several days of official closed-door meetings by legislative leaders that were called “the tribunal” turned out to be the path to resolve Minnesota’s budget impasse last week and adjourn the 2019 session. Governor Waltz is expected to sign all the compromise budget bills. Significant closed-door negotiations have always occurred at the legislature, especially when there is divided government, but it has never been made this official and a schedule was actually sent out. After members of the House and Senate could not resolve the significant differences on eight out of the nine state budget bills, Senate Majority Leader Paul Gazelka and House Speaker Melissa Hortman sent notices to all committee chairs with remaining bills open requesting they appear at a joint meeting of the leaders. Governor Walz and his staff were included. The group which was called “the tribunal” started meeting Monday afternoon and continued to meet through Thursday of last week when they wrapped up their work prior to the special session.
The plan worked and the legislature leaders eventually agreed to $43.8 billion two-year budget, which increases the budget by about 3% per year for the next two years. The increase is one percentage point higher than what CPI was from March 2018 to March 2019. NFIB thanks Senate Majority Leader Paul Gazelka, who played a key role in holding down budget increases, and the various Senate majority chairpersons who pushed for more austere budgets and rejected several terrible policy provisions that liberal House members had buried in the bills. Earlier the House had passed a 9.4% two-year increase and Governor Walz had proposed an 8.4% increase.
Massive Gas Tax Increase Defeated!
Governor Walz’s unrealistic 70% gas tax increase was shelved in the 2019 session and no increase of any amount advanced. Senate majority members put up strong opposition and finally convinced the governor and advocates in the House that there was no path to increasing the tax. NFIB strongly opposed this unrealistic increase.
The governor’s proposal, which did pass in the House, raised our current 28.5 cent gas tax by a whopping 70% all the way up to 48.5 cents per gallon, and worse yet, put the gas tax on automatic increases thereafter. Additionally, their proposal rescinded $230 million per year of general fund spending that has been dedicated to the critical need of transportation and their expensive step backward was equivalent to a 6.8 cents of additional gas tax increase just to restore the funding they cut! With the passage of a transportation bill, hopefully, all of these bad proposals are off the table in the 2020 session.
Incremental Tax Bill Has Some Victories for Small Business
An incremental tax bill that contained some victories for small business, passed during the special session. The bill also contained the extension of the provider or sick tax and drew a lot of criticism from conservative House members.
The bill contained the following positives for small business:
- Reduced the state general tax portion of the business property tax by $77 million in fiscal years 2020–21, and $100 million in fiscal years 2022-23. Minnesota has some of the highest commercial property taxes in the country and this is movement in the right direction.
- Made an incremental .25% cut in Minnesota’s second income tax rate which affects many small business owners. The second-tier rate which was 7.05% is reduced to 6.80 and affects joint filers with incomes up to $154,000 per year and single filers up to $87,000 per year. All totaled, it reduced income taxes by $318 million in fiscal years 2022–23.
- Partially conformed to the new federal section 179 expensing limit of $1 million per year but disappointingly retained our five-year add-back requirement. The maximum deduction per year is now $200,000. It was very disappointing that full conformity could not be achieved on this critical issue.
- Made a very positive change regarding the small business and farm special estate tax exemptions which allows $5 million per person to be exempt from the Minnesota estate tax. It deleted a requirement that a surviving spouse had to continue ownership of the business or the farm for three additional years after the passing of their spouse. In many cases, these individuals have been co-owners for many years and in some cases decades and this was an unnecessary and damaging requirement.
- Finally, the bill made a badly needed positive change for farmers by increasing the property tax credit they can apply to taxes owed for school building bond referendums from 40% to 70%. Farmers have disproportionately carried the burden of paying for these referendums due to their large land holdings.
Prior to the tax conference committee ruling liberals in the House passed a completely unreasonable $3 billion tax increase measure. It is notable they would vote for a massive tax increase such as this while the state has a $1 billion budget surplus. NFIB strongly opposed this unreasonable tax increase.
As mentioned, the bill also authorized the continuation of our provider or sick tax which was part of the compromise to get a bill passed. It also contained a significant amount of federal conformity tax provisions that will reduce or restrict deductions that some businesses previously could use.
Critical Reinsurance Program Is Re-Authorized
Our critical reinsurance program that saved the Minnesota individual health insurance market and also reduced premiums by 20% on average this year, was re-authorized. Governor Walz and House majority members had recommended scrapping the program and replacing it with a government-provided health insurance plan. Fortunately, the Senate prevailed and this successful program will continue for three more years. NFIB supported the continuation of this program.
The governor’s proposal to scrap this successful program was baffling. Minnesota has already received a five-year waiver from the Trump administration that could provide as much as $100 million of funding for this program to buy down expensive claims for insurers in the individual market. The governor’s proposal would have left that money on the table and enacted a new government-run program that fortunately did not prevail.
Big Defensive Victories!
Thanks to the Senate majority and strong opposition from NFIB and many others, several new negative proposals were defeated in the 2019 session! The following were defeated:
Mandated Paid Family Leave: An excessively expensive state-mandated family leave program that would have cost close to $1 billion per year and required 352 new positions just to launch it, was defeated. It is almost guaranteed that the cost of this program would have grown every year and it would have been funded by a new tax on every business and worker ranging from .4-.6% of income up to $132,900 per year. This was just the start; the tax rate would likely have grown every year.
Mandated Paid Sick-Leave: A new paid sick leave mandate modeled after what the city of Saint Paul has recently passed was defeated. The proposal would give full-time workers six days a year of sick-leave and they could accrue up to 10 days. Notably, there was no small business exemption.
Dramatic Change in Sexual Harassment Law: A dramatic change in our sexual harassment law that overturned a long-time U.S. Supreme Court precedent which would have a very negative impact on employers of any type, was defeated. Specifically, in the U.S. Supreme Court Meritor Bank case, the court determined that the harassing behavior had to be severe or pervasive in order for employees to file lawsuits. The bill that passed the Minnesota House repealed this critical standard and it would be detrimental to all employers.
Wage Theft
A new wage theft law was agreed to that pertains to employers who intend to defraud workers and created a new felony-level penalty if they defraud workers of more than $35,000. The new law was primarily aimed at employers that hire illegal workers and, in some cases, take advantage of that situation by shorting or denying them pay. Unfortunately, a bad law change occurred regarding language that governs general wage disputes that is harmful to employers and will make it harder to dispute claims by workers that may be false or inaccurate. NFIB will push to revise this language next session.
Legislature Signs Off Until February 11th
They will reconvene for what is known as the short session on February 11th. History tells us that “short” is only a hope.
