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It was four minutes to midnight on the final day of session when the Minnesota Senate passed the omnibus tax bill that wrapped up the Legislature’s work on the state’s $38 billion budget for the 2014-15 biennium. The down-to-the-wire finish followed a contentious final two weeks of negotiations between House, Senate and the governor’s office over the terms of final budget and policy deals.

Legislature finishes $38 billion state budget

Nursing homes were notable beneficiaries of increased HHS funding. The cash-strapped providers will get a 5 percent rate hike next year. There’s also an additional $7.6 million for nursing homes that will be disbursed to providers that meet certain quality metrics. (AP Photo: Genevieve Ross)

A sector-by-sector review of Minnesota’s 2014-15 spending bills

It was four minutes to midnight on the final day of session when the Minnesota Senate passed the omnibus tax bill that wrapped up the Legislature’s work on the state’s $38 billion budget for the 2014-15 biennium.
The down-to-the-wire finish followed a contentious final two weeks of negotiations between House, Senate and the governor’s office over the terms of final budget and policy deals. During that time, a number of spending initiatives got modified or left on the curb in the interest of bringing budget deliberations to a timely conclusion.

The largest spending hikes came in the K-12 and higher education budgets, though most budget sectors saw at least modest increases. Here’s a rundown of key provisions in the various spending bills.

E-12

From the start of session, the House, Senate and Gov. Mark Dayton were all in agreement that the education budget was due for a big increase. The question was simply which areas deserved new spending, and how much. The biggest new appropriation category in this budget, which totals $15.6 billion, is the $234 million increase toward the general education formula. During the House floor debate on the bill, some Republicans complained about not knowing how much money each particular school district would receive. By way of explanation, House Education Finance Committee chairman Rep. Paul Marquart, DFL-Dilworth, said the new funding would break down to more than $300 per pupil.

Education leaders in the DFL majority hope that amount delivers on a major campaign promise, and alleviates the need for districts to continue to pass new and increased property tax levies. Democrats also hope the bill goes some distance toward fulfilling another pledge made on the campaign trail. Under what’s described as an “accelerated payback” of the school shift, the bill tasks Minnesota Management and Budget with dedicating surplus revenues toward debt payment as of the end of the 2013 fiscal year; under the previous payback timeline, MMB would have waited until the November economic forecast before allotting those payments.

As outlined in the bill, in October, MMB will inform the House and Senate education committee chairs of the amount of outstanding debt to school districts at that point. If the accumulating surplus isn’t sufficient to keep paying down the outstanding shift, which now stands at more than $800 million, Marquart said the Legislature could revisit the matter after the February 2014 forecast and appropriate additional funding.
The education funding bill also includes $134 million for optional all-day kindergarten, which will be available starting in the fall of 2014, and another $46 million for early childhood education scholarships. The latter funding was criticized by some, including Rep. Ryan Winkler, DFL-Golden Valley, who thought the Department of Education had exerted too much control over the scholarship process.

— Mike Mullen

Health and human services

Health and human services was the only area of the budget targeted for cuts. But the ultimate reduction, $50 million, fell below the initial House and Senate targets of roughly $150 million in cuts.

But even the more modest reduction was further softened by some accounting gimmickry. The bill requires hospitals and health plans to expedite surcharge payments so that the state can book additional revenue in the 2014-15 budget cycle. Basically they’re required to make 12 months’ worth of payments in nine months. The hospital and health plans will then have a three-month payment holiday in the next biennium. That allows the state to book an additional $76 million. Legislators creatively dubbed this surcharge “reform.”
Nursing homes were the big beneficiaries of the increased funding. The cash-strapped providers will get a 5 percent rate hike next year. There’s also an additional $7.6 million for nursing homes that will be disbursed to providers that meet certain quality metrics. That robust increase allowed DFLers to quiet carping by Republicans that they were shortchanging nursing homes even while boosting taxes by $2 billion.
Advocates for expanded mental health services were also pleased with the bill. Most notably, the HHS budget includes $7.4 million in additional funding for school-based services.

But not all constituency groups fared so well. Group homes for people with disabilities received just a 1 percent rate hike, and that doesn’t kick in until April of next year. They’ll be looking to get some additional assistance when the Legislature reconvenes next year.

“We’re very disappointed about that,” said Bruce Nelson, CEO of ARRM, an association of nonprofit and for-profit group home operators. “We will be back asking to remedy this situation, no doubt about it.”
In addition, counties will be responsible for a larger share of the costs for treating individuals at the Anoka Regional Treatment Center and the Minnesota Security Hospital. They’ll now be on the hook for 75 percent of the cost of such placements. That’s expected to amount to roughly $8 million more in spending for counties.

Public hospitals are taking a hit because of changes in the formula used to reimburse them for prescription drugs dispensed to the uninsured and to individuals on Medicare and Medicaid. The changes amount to a 30 percent reduction in reimbursement for drugs obtained through a pharmacy and a 20 percent reduction for those received at a clinic. A preliminary estimate by Hennepin County Medical Center indicates that the hospital will lose about $8 million in funding for the biennium. Regions Hospital and Fairview hospitals and clinics will be similarly affected.

— Paul Demko

Higher education

Higher education received the largest percentage increase of any section of the budget. The $2.8 billion in spending adds up to a nearly 10 percent boost over what was anticipated for the next biennium.

The $250 million increase was split between the three chief spending targets: the University of Minnesota ($75 million), the Minnesota State Colleges and Universities (MnSCU) system ($102 million) and the state’s tuition assistance program ($75 million). The higher spending for MnSCU reflects staff bonuses already on the books — a practice that Rep. Gene Pelowski, chair of the Higher Education Finance and Policy Committee, has vowed to eliminate. (Expect hearings on the topic of compensation for employees at the public colleges and universities outside of session.)

In return for the additional spending, both MnSCU and the U of M agreed to a two-year tuition freeze. The increase in the state grant program included $30 million specifically devoted to part-time students, who previously weren’t eligible for tuition assistance.

The most controversial policy provision included in the bill is the “Dream Act,” which allows high school graduates who lack proper immigration documents to receive in-state tuition rates and qualify for state grants. To be eligible, students must have attended school in Minnesota for at least three years and make an effort to achieve legal resident status. Pelowski was strongly opposed to the proposal, refusing even to bring it up for a vote in his committee, but it was included in the Senate bill and had the support of Dayton.

Inclusion of the hot-button immigration proposal eroded most GOP support for the bill, but it will have limited consequences. Only about 750 students are expected to be affected by the change in law.

— Paul Demko

Judiciary

The judiciary budget bill provides funding increases for the public defender system. The bill provides an $8.5 million increase for public defender salaries and benefits. It also provides a $3.8 million increase for new public defender hires.

The conference agreement contained a $2 fee increase that will generate $1.6 million into a special revenue fund to be put toward improved technology in the courts system. The House proposed several other fees, but those measures died in conference committee in the face of Senate opposition.

The House, however, prevailed on funding for specialty courts like drug courts, veterans courts and DWI courts. The bill also contains non-controversial gun provisions that were added late in the conference negotiations. Among the changes, the bill would speed up the transfer of fingerprints to a national database.

Charley Shaw

Jobs and energy

Several business incentive and workforce development programs will receive funding increases through the omnibus jobs bill. An energy bill that was confereed separately and later rolled into the jobs bill requires Minnesota investor-owned utilities to add solar energy to their mix of sources of electricity generation. The bill provides $30 million in increased funding for the Minnesota Investment Fund (MIF) for local governments to help business development. Up to $5 million of the MIF funding is for loans for the Baxter Healthcare expansion in Brooklyn Park. The Minnesota Job Creation Fund, which replaces the Job Opportunity Business Zone (JOBZ) program that was created by Gov. Tim Pawlenty’s administration, received $24 million.

The bill forgives $28.8 million of the city of St. Paul’s debt for the Xcel Energy Center. The inclusion of St. Paul’s Xcel debt upset the balance of power between Minneapolis and St. Paul, which was later resolved with a comparable amount of debt forgiveness for Minneapolis library bonds. (That provision was ultimately included in the tax bill.)

The bill also features a compromise between the House and Senate on extending unemployment benefits for locked-out workers. The House had passed three years’ worth of extra unemployment insurance for those workers, while the Senate came into conference with nothing. The conference deal adds six months of eligibility for benefits.

The bill’s solar energy standard requires investor-owned utilities to generate 1.5 percent of their electricity from solar sources by 2020. The amount was pared down from the 4 percent goal that initially passed the House floor but lacked the votes to pass out of the Senate Environment Finance Committee. In limiting the standard to investor-owned utilities, the bill exempts electrical co-operatives and municipal utilities, which argued that the higher costs of solar energy would result in higher electric bills for rate payers. As part of the conference deal, 10 percent of the solar mandate must come from smaller solar projects of 20 kilowatts or less.

— Charley Shaw

Transportation

After weeks of dithering over transportation funding, the Legislature finally settled on a bill with no significant sources of additional revenue. The chief problem was Gov. Mark Dayton’s strong opposition to any increase in the gas tax. That made rounding up the votes to pass a proposed half-cent increase in the sales tax in the seven county metro area to pay for transit projects a difficult proposition. The reason? Rural lawmakers were hesitant to vote for it without any similar commitment to increased spending for roads and bridges outside the metro area.

The only salve for transportation interests was $300 million in trunk highway bond to speed up road projects across the state. That plan, brought forth by Minnesota Department of Transportation commissioner Charlie Zelle during the conference committee, was ultimately adopted.

The bill contains $55 million in funding for light rail transit. That includes $37 million to develop the proposed Southwest Corridor line.

— Paul Demko

State government

Though it received little attention, this omnibus package pays for much of the backbone of state government. That includes the budget for the Legislature – $30.5 million annually for the House, and about $23 million per year for the Senate – and the Departments of Revenue and Management and Budget, which will get about $281 million and $48 million, respectively, in the coming biennium.

This bill is perhaps as notable for what didn’t make the cut as for what did. Thanks to a late-session deal between the Senate and House to pass a 2016 ballot initiative that would hand the issue of legislator pay to an appointed compensation council, the final government operations bill left out a proposal to raise lawmakers’ salaries from $31,040 to $40,890. But some state officials will get a raise: The governor’s salary will be raised by 3 percent in 2015, and again in 2016, boosting that position’s annual pay from $120,000 to about $128,000. The state’s other constitutional officers – the attorney general, the secretary of state, and the state auditor – will receive a corresponding boost.

Other raises might be on the way, as well. Whereas previously the governor could set pay for cabinet members at up t 95 percent of his own pay, the governor would now be able to set cabinet salaries as high as 133 percent of the chief executive’s pay. For other senior administration positions, such as the executive director of the Gambling Control Board or chairman of the Metropolitan Council, salaries can now go as high as 120 percent of the governor’s. The bill also requires that MMB hire an independent consultant to study salaries of managerial positions in the administration, with the goal of “better align[ing] compensation for these positions with comparable positions in the private sector and with other relevant public sector employers.”

— Mike Mullen

Legacy

The weeks-long impasse over appropriating Legacy funds was solved early in the morning on the last day of session, and the House and Senate pushed through a bill that spends nearly $500 million on environmental and cultural projects.

The Legacy, which was passed by Minnesota voters in 2008, dedicates sales tax dollars to four funds: habitat, clean water, parks and trails and arts and culture. Three of the four funds were appropriated for the upcoming two-year budget period. The habitat funding from the Outdoors Heritage Fund was given a single year’s worth of funding for 2014 ($100 million), and lawmakers next year will pass a bill for the second year of the biennium. The three others are: Clean Water ($194 million), Parks and Trails ($85 million) and Arts and Culture ($116 million).

All of the recommendations for the Outdoor Heritage Fund that were made by the legislator-citizen Lessard-Sams Council were passed in the Legacy bill. Over the objection of sportsmen’s groups, however, the House successfully added two additional projects that were passed over by Lessard-Sams. They involve $6.3 million in habitat funding for metropolitan regional parks and $3 million for local governments to combat aquatic invasive species.

The habitat funding for parks in the metro area helped to settle a disagreement between Twin Cities and greater Minnesota over the parks portion of the funding. The parks and trails funding is split into three pots of money in proportions that metro-area interests deemed disproportionate in terms of population and sales tax base. The House, led by Rep. Phyllis Kahn, DFL-Minneapolis, took up the metro’s case in the face of significant opposition from greater Minnesota, and the controversy wasn’t resolved until the 24 hours of session. The metro settled for the less favorable parks percentages, with the Outdoor Heritage Fund money for metro parks providing a suitable compromise.

Because the habitat funding for the metro wasn’t vetted by Lessard-Sams, it was opposed by conservation and sportsmens’ groups. On Tuesday, after the bill passed the House and Senate, former Minnesota Vikings coach Bud Grant called on Dayton to line-item veto the added appropriations, noting that he was elected with support from hunters and anglers.

“I would hate to see you jeopardize the valid concerns of those who supported you in your election campaign,” Grant wrote. The additional money for metro parks habitat and aquatic invasive species came out of the Outdoor Heritage Fund’s bottom line.

A policy provision in the Arts and Culture section of the bill turned out to be one of the biggest talkers around the Capitol. The provision, which was championed by Kahn, allows wine and malt liquor to be sold in the Rathskeller cafeteria in the Capitol basement, with the stipulation that the products sold there be produced in Minnesota.

— Charley Shaw

Environment

On Saturday night the House and Senate passed a budget that funds environmental and agriculture programs in the state budget. The bill also includes major policy provisions for frac-sand mining and paint disposal.
The bill provides $756 million in direct spending, much of it from special revenue funds, for the agencies that deal with the environment and natural resources, and $81 million for agriculture.

The bill resolved differences between the House and Senate on funding to pay for ground water monitoring throughout the state. The House’s proposed fee on big water users like cities and farmers failed to make it out of conference committee. But the agreement does include $7.5 million from the general fund for water monitoring.

The frac sand issue was in play in several different bills at various times in the session. Residents of southeastern Minnesota came to the Capitol repeatedly during session to lean on state lawmakers to pass regulations on silica sand mining activities in their region.

The bill includes a Senate proposal that requires any silica sand mine within a mile of the area’s many trout streams to receive a permit from the state Department of Natural Resources. The permit requires that a hydro-geologic study be conducted as a guide for determining how far the operation should be set back from the stream.

At the behest of the House, the bill addresses more than just trout stream concerns. It requires that a model ordinance be created by the Environmental Quality Board to take into account well-head protection. It also calls for air and water quality standards in connection with temporary storage of sand.

Another policy provision in the bill requires that the architectural paint industry develop a so-called “product stewardship program” for finding environmentally friendly ways to dispose of discarded paint. The product stewardship provision contains a 75-cent per can fee assessment, which drew criticism from Republicans.

The House had sought product stewardship programs for carpet and primary batteries in addition to paint. But the Senate prevailed in limiting the bill to paint.

— Charley Shaw


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