The main issue: How much of the Minnesota’s surplus money — along with unspent cash from the federal American Rescue Plan — the state should spend.
Minnesota legislators are taking their Spring Break this week, giving everyone time to contemplate how far apart House DFLers and Senate Republicans are on the main issue of the 2022 session: how and how much of the surplus money — along with unspent cash from the federal American Rescue Plan — the state should spend.
The most-common conclusion: very far apart. DFLers generally want to spend more of the $9.25 billion surplus and $1.15 billion in ARPA funds on policies and programs with a little set aside for tax cuts. Republicans want to spend a bunch of money on tax cuts with a little set aside for policies and programs.
Matt Shaver, the policy director of Ed Allies, an advocacy group for students of color and those with special needs, used Legos and a map of the state to display the gap between the House’s $1.2 billion for new education spending to the Senate’s $30 million.
“If every mile was 10 million dollars, the two sides would be the distance from the Mall of America to International Falls apart,” Shaver said in a Tik Tok video in which he suggested negotiators could meet at the halfway point of McGregor, Minnesota.
But education, while one of the most obvious areas of disagreement, isn’t the only one: The House wants to spend $240 million on environmental programs; the Senate proposes $1 million. The House would spend $56 million on agriculture and rural development; the Senate: $5 million.
And while both the House DFL and Senate GOP propose spending around $200 million on public safety programs, their plans go in very different directions.
On taxes, the Republican-controlled Senate passed a $3.4 billion tax cut, primarily by nearly halving the lowest income tax tier and ending the state’s remaining taxes on Social Security income. Senate Republicans are proposing spending about $1.7 billion on new spending, with the bulk of that going to increase pay for long-term care workers.
The House DFL has proposed $1.6 billion in tax cuts, which are mainly targeted at lower-income residents and families via child care credits, rental credits and student loan credits. In turn, they have crafted new spending that totals around $5.4 billion on education, early childhood programs, health and human services, housing and other areas of government.
And then there’s Gov. Tim Walz, who shares a political party with the House majority but is not in agreement with the caucus on several key issues. Walz supports what his staff dubbed “Walz Checks” — one-time payments to taxpayers that total $2 billion — rather than the GOP income tax cuts or the DFL’s targeted tax breaks. Walz agrees with House DFLers on spending $1 billion on bonuses to essential pandemic workers — as opposed to the Senate’s $250 million — but he agrees with Senate Republicans on devoting $2.7 billion to replenish the unemployment insurance trust fund; House DFLers want to spend $1.85 billion on the trust fund, up from a previous offer of $1.4 billion.
But an early test of how Walz, House Speaker Melissa Hortman and newish Senate Majority Leader Jeremy Miller might be able to broker deals didn’t end well. A series of meetings to agree on worker bonuses and unemployment insurance failed, though related talks on renewing the state’s “reinsurance” program, a mechanism to subsidize some health insurance premiums, was more successful.
Not just one-time spending
You can’t listen to floor debates or committee hearings for long without hearing someone call the budget surplus “historic” because, well, it is. Taken together, the surplus and the unspent ARPA funds are about 20 percent of the state’s current two-year, $52-billion budget.
And while previous surpluses, often in the range of $1.5 billion, disappeared when projected into the following budget period, this time the state is forecasting another $6.3 billion surplus in the 2024-2025 biennium.
That has allowed both the House and Senate to do more than propose one-time spending — expenditures that only affect the current budget and don’t obligate the next Legislature to either keep the spending in place or cut it. So the House DFL can take a chance on new ongoing programs and the Senate GOP can impose what they repeatedly describe as “permanent, ongoing tax relief.”
Yet concerns over the future, despite the current revenue forecast, contribute to Walz’s preference to use one-time rebate checks instead of cutting tax rates.
Failure is an option
While the House and Senate have each made serious spending proposals, most aren’t to be taken seriously. That’s because they aren’t meant to be a path to an agreement but rather a statement of positions. As in previous sessions when the two parties share political power, any controversy is either wrung out in closed-door leadership negotiations or dropped on account of being intractable.
Unlike some recent session-ending dramatic finishes, however, there is no government shutdown awaiting if a deal isn’t reached this year. The state is not yet halfway through the two-year $52 billion budget adopted last June. If unspent, the surplus simply goes into the bank, and the unspent ARPA funds go to the Legislative Advisory Commission, a group of lawmakers that Walz needs to consult before spending the money, though he does not need the group’s approval.
Failure, therefore, is an option. Such an ending, however, will leave a lot of disappointed people among those with expectations for spending on social programs, or tax cuts, or bonus checks, or reductions in unemployment taxes — or any of the other much-touted uses of the money.
The politics of the session are a choice between whether doing nothing and waiting for the election is more advantageous than getting something to talk about during the campaign.
“Republicans are open to any ideas to put money back into the pockets of Minnesotans,” Miller said last week. But the Winona Republican said he thinks their plan is the best way to do that.
DFLers are reluctant to agree to tax rate cuts — even for the lowest tier of income — because every taxpayer pays some of their taxes in that bracket. “Rather than do a little bit for those who don’t need it, we thought: How can we move the dial, really make a difference, in the lives of our families, our workers and our senior citizens?” said House Taxes Chair Paul Marquart, DFL-Dilworth.
When the session reconvenes on April 19, it will have a month to finish its work.
In those final weeks, legislators and Walz will be reminded why compromises this year will be even harder. Both the GOP and DFL are holding their party conventions in Rochester in May (May 13- 14 for Republicans and May 20-21 for the DFL). Delegates to those conventions tend to come from the right and left flanks of the party, respectively, which means conventions aren’t usually the place to brag about getting some of what you want — and giving the rest away to the other side.