Minnesota Legislative Update: 2010 Session Wrap Up

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1 Minnesota Legislative Update: 2010 Session Wrap Up 25-May-2010 Meredith Beeson Sonnie A. Elliott Richard A. Forschler Kathryn S. Hahne John H. Herman Nancy B. Hylden One-Day Special Session Used to Finalize Budget Solution The 2010 Legislative Session adjourned May 17 following a brief special session, which was necessary to pass a budget-balancing bill to fix the state's $2.9 billion deficit. In the final weeks of the session, the Minnesota Supreme Court upheld a ruling that found Gov. Tim Pawlenty's use of unallotments the previous year to be illegal. Although the ruling regarded only one specific unallotment, it called into question all of the $2.7 billion in cuts Pawlenty made at the end of the 2009 session. Prior to the court's decision, the remaining budget deficit was $535 million. To fix the budget problem, lawmakers agreed to ratify the governor's unallotments, approved budget reductions, and authorized additional payment shifts. The state is now out of the red for the remainder of FY2010 and 11, but the 2011 Legislature and new governor will face a deficit between $5 and $7 billion in the next biennium. Bonding Bill Adopted The even numbered year of the biennium has traditionally been focused on funding new state building projects and preserving existing infrastructure through approval of capital bonding projects. In addition to finding a budget solution, the legislature passed a $1billion bonding bill during the first six weeks of the session. Pawlenty line-item vetoed the bill down to $680 million.

2 Jobs and Job Creation a Focus for the Session In addition to the bonding bill, the Legislature passed a jobs bill (Chapter 216) creating an angel investor tax credit that will make $50 million available over the next five years for startup companies, provide tax breaks for historic restoration of buildings, offer various incentives for energy conservation initiatives, and authorize subsidies for renovation of the Ford plant in St. Paul and expansion of the Mall of America. Governor's "No New Taxes" Position Prevails As part of their budget solution, the DFL-controlled legislature offered a bill that included significant reductions to the state's budget and the creation of a fourth-tier income tax bracket that would have raised more than $400 million in revenues. As expected, the governor vetoed the proposed legislation. Earlier in the session, Senate Tax Committee Chair Tom Bakk (DFL-Cook) offered a proposal to expand the sales tax to include clothing while reducing the overall sales tax rate. The proposal did not receive a hearing in the House and was not included in the final tax bill. Other potentially problematic proposals, including revisions to tax treatment of foreign operation corporations and foreign royalties and new penalty provisions, were also halted by the Governor this session but are likely to return in the future. Health Care Reform, on Both State and Federal Levels, Takes Center Stage One of the biggest sticking points in the final days of the session involved whether or not the state should expand eligibility of the federal Medicaid program for childless adults. DFL members and leadership argued that the state would receive $7 dollars in federal monies for every $1 dollar the state invested in the program. Republicans and the governor said this would be an extension of the federal health care reform. The final budget agreement included an "opt-in" choice for the governor (either Pawlenty or his successor) to participate in the program. It remains to be seen whether Congress will extend the enhanced Medicaid matching rate (known as FMAP), which would help cover health care costs for low-income people under the state's Medical Assistance program. Although the Legislature solved the budget deficit without the FMAP extension, contingency language will allow reversal of cuts to

3 services such as child protection and homeless shelters if federal dollars are approved by June 15. Another key health care issue this session involved re-creation of the General Assistance Medical Care (GAMC) program, following unallotment of its funding by Pawlenty last session. This year, the initial legislation to restore coverage for Minnesota's poorest individuals was vetoed by Pawlenty, who said the proposal did nothing to contain costs or improve quality. A significantly pared down version of the GAMC program (Chapter 460) was signed into law on March 26. A Particularly Political Session In order to accommodate voting by service personnel and others living outside of the U.S., the Legislature approved moving the state's primary to August 10. As a result, both parties held their state endorsing conventions during the legislative session. A number of seated legislators from both sides ran for their party's endorsement for governor. All members of the House and Senate, along with all constitutional officers will be on the ballot next November. State election law was modified to reflect the significant First Amendment ruling included in the U.S. Supreme Court Citizens United case, which removed restraints on independent expenditures by corporations during federal election campaigns. Bipartisan efforts to put more stringent reporting requirements on corporate independent expenditures succeeded in the last hours of the session with the final bill awaiting Pawlenty's signature as of May 24. No K-12 Education Bill Passed As part of the budget resolution, the state will delay approximately $2 billion in payments to school districts, but despite attempts during both the regular and special sessions, the Legislature was unable to pass an omnibus K-12 education bill. Many were eager to see how education policy might be changed to enhance the state's application for the federal Race to the Top grant program, which rewards states that demonstrate innovative policies to address under-performing schools and students. Two key reform proposals included changes to teacher licensure and stronger links between teacher evaluations and student performance. Both policy initiatives were opposed by Education Minnesota, the state's teacher union. Since neither proposal was passed this

4 session, Pawlenty and the Department of Education decided not to submit another application for the second round of money. Another provision debated this session was the continuation of a special levy authority that could be set by a local school board resolution in order to bypass the voter approval requirement, which did not pass. Some legislation that did pass this session includes higher standards for physical education programs and stronger requirements for the current teacher licensure process. During the brief special session, an education omnibus bill, HF3/SF2, excluded controversial provisions that doomed its earlier counterpart. Even this scaled-back version failed on a vote of 85 to 43 in the House short of the 90 votes needed to waive the rules during the special session. This education omnibus bill was met with steep opposition since part of the agreement on the special session was to only deal with the budget-balancing bill. Key Early Childhood Education Proposals Signed Into Law The omnibus early childhood education bill (Chapter 346) passed the Legislature and was signed into law on May 15. Provisions in the bill include the creation of a task force to make recommendations due next legislative session on establishing a state Office of Early Learning. The task force would include representatives of state agencies, nonprofit organizations, members of the governor's early childhood education council, and legislative members of the early childhood caucus. The bill requires the state Early Childhood Advisory Council (ECAC) to make recommendations on measuring state progress toward learning readiness "a statewide school readiness report card" by next session. The bill also requires the ECAC to develop a framework to expand screenings and assessments for children entering kindergarten beginning in 2012, and also directs $500,000 in federal money toward educating early childhood providers about quality rating initiatives such as the successfully piloted Parent Aware program. Higher Education Budgets Reduced, U of M Gets Alcohol Revenues As part of the first round of budget reductions the University of Minnesota and MNSCU had their budgets reduced. The state grant program, which provides grants to students regardless of which higher education institution they attend, did not suffer a budget reduction. The grant program has already projected insufficient funding to meet the needs of students wanting to attend college.

5 Responding to ongoing controversy regarding liquor sales at the new TCF stadium, the Legislature provided the University of Minnesota some flexibility. Final legislation requires liquor to be sold in a third of the stadium, as determined by the Board of Regents, in order to allow liquor service in premium seating areas. Seventy-five percent of net revenues from the alcohol sales must be dedicated for scholarships. Vikings Stadium Proposal Punted to Next Session With the Vikings' lease agreement expiring after the 2011 season, momentum for a proposal to fund a new Vikings stadium began to build around the Capitol this session. With budget reductions foremost on legislator's minds, however, no stadium financing proposals were passed. Expect a big push for a stadium deal next year and watch for the Vikings to find a local government partner as the Twins did with Hennepin County. Environment and Energy: Progress on Permitting, Nuclear Facility Proposal Stalls There was a notable effort to streamline the state's environmental permitting processes this session. The Department of Agriculture has a new goal of issuing environmental permits within 150 days from receipt of the application. Expect to see similar goals for permit issuances applied to the Department of Natural Resources and Pollution Control Agency. Improvements to the e-licensing system, changes allowing for more customized environmental assessment worksheets, and coordination of review and permitting among state agencies were also passed. Extensive hearings were held in both House and Senate environment committees on nonferrous mining, particularly relating to financial assurance requirements for mining companies. Opponents of stringent financial assurance mechanisms claim that economic development is needed and that efforts to delay development will negatively impact Northeastern Minnesota. Environmentalists are concerned with the potential harmful effects of such mining practices. No financial assurance legislation was passed, in part, because non-ferrous mining operations are still in the environmental review process. Lifting a ban on the construction of nuclear facilities in Minnesota was debated again this session. The House approved eliminating the moratorium on nuclear plant construction, albeit with a number of conditions. The Senate did not act on the House provision.

6 Legacy Funding Outdoors groups set to receive funds allocated by the Clean Water, Land and Legacy Amendment were deeply divided over definitions of "restore," "protect," and "enhance" included in state statutes. Legislators replaced some of the objectionable language and eventually managed to approve the bill allocating $59 million in funds constitutionally dedicated for conservation and the environment. Public Safety: Ignition Interlock for DWI Offenders A signature public safety proposal of the session, breath-activated ignition interlock for DWI offenders, was passed (Chapter 366). Senate Transportation Chair Steve Murphy (DFL-Red Wing) authored the legislation, which allows first-time offenders to voluntarily participate in such a program and requires repeat offenders to have devices in their cars. Some Members Say Goodbye The following legislative members have announced their retirement: Sen. Tarryl Clark (DFL-St. Cloud) Running for Congress Sen. Steve Dille (R-Dassel) Sen. Dennis Frederickson (R-New Ulm) Sen. Mee Muoa (DFL-Saint Paul) Sen. Steve Murphy (DFL-Red Wing) Sen. Pat Pariseau (R-Farmington) Sen. Yvonne Prettner-Solon (D-Duluth) Lieutenant governor pick for Mark Dayton Sen. Jim Vickerman (DFL-Tracy) Rep. Margaret Anderson Kelliher (DFL-Minneapolis) Running for governor Rep. Karla Bigham (DFL-Cottage Grove) Rep. Laura Brod (R- New Prague) Rep. Randy Demmer (R-Hayfield) Running for Congress Rep. Rob Eastlund (R-Isanti) Rep. Tom Emmer (R-Delano) Running for governor Rep. Larry Haws (DFL- Saint Cloud) Rep. Jeremy Kalin (DFL- North Branch) Rep. Paul Kohls (R-Victoria) Rep. Doug Magnus (R-Slayton) Running for state Senate

7 Rep. Mary Ellen Otremba (D-Long Prairie) Rep. Marty Seifert (R-Marshall) Rep. Dan Severson (R-Sauk Rapids) Running for secretary of state Rep. Cy Thao (DFL-St. Paul) In Conclusion The 2010 Legislature managed to pass a jobs and capital improvement bill, health reform, and a budget balancing bill. Although the Legislature faced a $2.9 billion deficit this year, the largest part of the solution had already been implemented though ruled illegal a year later through the governor's unallotments. Another budget deficit between $5 and $7 billion dollars is projected for the next biennium. With all available "quick" fixes such as one-time reductions or payment shifts already exhausted, the next budget shortfall will most likely be much more difficult to solve. The new Governor and Legislature will undoubtedly debate more significant cuts and tax increases. The next legislative session convenes on January 4, 2011.