Shutdown’s End: Final negotiations involved tussles over where policy meets spending

After the framework of a budget deal was announced last Thursday, commissioners, chairs and fiscal staff members went to work, turning the still-closed Capitol into a hive of private meetings on each bill, featuring shuttle diplomacy visits from the leadership as needed.

Initially, Republicans said they would complete the drafting of their bills by 10 p.m. Friday. But after that deadline came and went, leaders in both chambers declined to give any further estimates of when they would finish their work. It became clear that there were still substantive disagreements on many bills, most of them centered on gray areas where “policy” proposals — many of which were taken off the table as part of the framework agreement — were tied to modifications of spending programs or practices.

To the surprise of many, negotiations on the HHS bill went smoothly by most accounts. The key disagreements lay in K-12 and state government, and those meetings proved the most contentious and protracted. On Friday GOP Senate State Government Chairman Mike Parry reportedly stormed out of a budget meeting after Minnesota Management and Budget Commissioner Jim Schowalter told the senator from Waseca that policy reforms would not be part of the state government budget discussion. After the spat, Dayton said that some committees would require “adult supervision” in order to crack a deal on time. Appearing on TPT-TV’s Almanac Friday night, Senate Majority Leader Amy Koch agreed.

But Parry was not the only object of the “adult supervision” jab. Sources familiar with negotiations on the education finance bill say House K-12 Finance Chairman Pat Garofalo lost his temper over school reform provisions in a couple of meetings, purportedly hurling his laptop to the floor in disgust at a Friday meeting and storming out of a Sunday night gathering.

The two sides finally completed the state government bill late Sunday. The concluding negotiations on the K-12 bill wrapped up around 2:30 a.m. Tuesday.

Some of the key points of contention from bill-by-bill deliberations:

K-12 education

Even as Gov. Mark Dayton and GOP leaders were holding a Tuesday morning news conference to announce the special session at 3 that afternoon, rumors continued to fly around the State Office Building that something had “blown up” overnight on the K-12 bill.

Though the rumor was apparently incorrect, the stage was set for the acrimonious week of concluding K-12 negotiations by a slate of far-reaching education policy reforms that House Republicans had written into the bill they passed at the end of the regular session.

An initial offer by Republicans included a policy change to move away from the traditional teacher tenure system and establish a five-year rolling tenure system. That proposal was dropped early in Monday night’s negotiations, said House Education Reform Committee Chairwoman Sondra Erickson.

During those Monday talks, the two sides traded offers and listened to a state mediation official discuss issues related to teacher contract negotiations.

One of the major points of contention, which was discussed until the end, concerned the creation of a new teacher evaluation system. During the regular session, Republicans and DFLers agreed that the state lacks an adequate method to evaluate teachers, but Democrats objected to the Republican evaluation proposal because it would be used to make tenure decisions.

The final bill created an evaluation system for teachers and for principals, but it will not be linked to tenure decisions.

Another major issue concerned the $50 per pupil increase in the education funding formula. There was talk of delinking compensatory aids from the increase, which Dayton opposed. In the end, compensatory aids were connected with the formula increase.

Bonding bill

The agreement between Dayton and Republican legislative leaders included a major concession to the governor in the form of a $500 million bonding bill.

The bonding package — which requires a three-fifths majority in each chamber — represented the lone budget bill in which the Republican majorities brought DFL legislators to the table for final negotiations. On Sunday and Monday, Capital Investment Chairs Rep. Larry Howes and Sen. Dave Senjem met with DFL minority leaders (and former chairs) Rep. Alice Hausman and Sen. Keith Langseth in Room 15 of the Capitol.

The projects they were weighing included convention center projects in the swing districts of Rochester and St. Cloud. But those projects, which were an object of scorn for some GOP conservatives, were cast aside in favor of spending $33 million on local bridge repair work, $50 million on flood mitigation, $20 million on waste-water projects and $20 million on the Reinvest in Minnesota (RIM) habitat conservation program.

Higher education facilities also figured prominently in the bill. The Minnesota State Colleges and Universities (MnSCU) system received more than $130 million, including $98 million in state general obligation bonds. The University of Minnesota’s nanotechnology center was funded, as was a Central Corridor vibration-mitigation project for U laboratories located near the light rail line. And $42 million was devoted to an integrated science and engineering lab at St. Cloud State. (The last project prompted one legislator to joke that the state was spending $3.4 million for each of the 13 votes by which Republican Rep. King Banaian won his razor-thin 2010 victory.)

One key priority among many lawmakers during the regular session, a fish barrier at the Coon Rapids Dam to prevent the northward spread of Asian carp, received $16 million. The deal also cancelled a $22 million bonding appropriation for the Minneapolis planetarium.

Howes, who predicted throughout the regular session that Dayton would relent on his call for an income tax increase and go home instead with a bonding bill, said the bill clocks in at $531 million in general obligation bonds.

“When the smoke clears, I think people will believe this is a good bill,” Howes said. “It looks like about 80 to 90 percent of it will be shovel-ready, and it’s unusual to be able to get that high a proportion.”

Health and human services

The health and human services budget, which had largely stymied negotiators in previous budget talks, coasted to an unexpectedly tranquil conclusion.  The administration and Republican negotiators agreed to the Healthy Minnesota Contribution program, which will give funding to MinnesotaCare enrollees without children who are above 200 percent of the federal poverty guideline so they can buy private health insurance.

The bill makes some cuts to health care provider surcharges and sets out to eliminate the tax on health care providers by 2019.

House and Senate Republicans pushed unsuccessfully for the Lutheran Social Service-backed disabilities waiver program called My Life, My Choices. House Health and Human Services Reform Committee Chairman Steve Gottwalt said the administration felt that the program could be pursued through waivers in the bill. Gottwalt said he will continue to push for the legislation in the future.

Tax bill

Many observers thought that the shape and extent of cuts to local government aid (LGA) would dominate tax bill talks, but sources familiar with those talks say most of the discussions revolved around fine-tuning lesser provisions (such as federal tax conformity  measures) and devising language to pave the way for the state to borrow $640 million by issuing appropriation bonds. Counting interest, the eventual payback on that debt is expected to be $1 billion to $1.2 billion.

LGA did play a central role in the timing of the hurry-up special session, however: Legislators and the governor’s office were under pressure to make sure that a scheduled LGA disbursement did not go out on Wednesday under the old statutory formula. “That would be a very big problem,” House Taxes Chairman Greg Davids said shortly before the special session convened on Tuesday.

In its final form, the tax bill funds LGA at 2010 levels with none of the additional reductions to Minneapolis, Duluth and St. Paul that Republicans had previously pushed. The $60 million that GOP  majorities initially proposed to take from the Douglas J. Johnson Iron Range redevelopment fund was ultimately left out of the bill. The renter’s property tax credit, entitling renters to a 19 percent refund on rents paid, was restored, though it will be reduced to 17 percent after 2012. The Political Contribution Refund program will be eliminated for the next two years. Most federal tax conformity measures will be adopted. Two exceptions: the marriage penalty, which would have cost the state $117 million in the current biennium, and Section 179 accelerated depreciation.

State government finance

The Republican state government finance bill raised eyebrows during the regular session by proposing steep cuts to the state workforce. Dayton prevailed in getting the Republicans to withdraw their 15 percent reduction to the state workforce by 2015. The final bill adopted the more modest 6 percent reduction by 2013 that Dayton had advocated.

With money issues out of the way, policy issues continued to be a thorny part of the negotiations.

During the regular session, the Republicans’ state government conference report included a so-called sunset commission that would periodically consider whether state agencies should be continued, closed or changed. The Dayton administration opposed the sunset commission in the talks, according to one insider, but Republicans ultimately won that argument.