Legislative Update: April 25, 2019

Senate passes omnibus higher education bill

The Senate passed the higher education omnibus bill last night by a vote of 38-29 after a robust conversation about online tuition. There were five amendments offered on the floor last night, four of which were related to the online tuition provision in the bill that mandates tuition for an online course at Minnesota State cannot exceed the tuition for a comparable on-campus classroom course. This differential amounts to a reduction of $65 million to the Minnesota State colleges and universities over the biennium.

Among the amendments that did not pass was an attempt to delete the unfunded mandate in the bill and instead require Minnesota State to provide a report that includes information specifying the initial investments associated with providing online classes, the ongoing costs, and the fiscal impact on the institutions related to the requirement to charge the same tuition rate for online and comparable in-person courses.

The bill now heads to conference committee, where five Senators and five House members will be appointed to a committee to work out the differences between the House and Senate higher education bills.

A reminder about what is in the Senate bill for Minnesota State in addition to the online tuition cut; the bill appropriates $46.9 million to Minnesota State. Of that amount, there is $22 million for NextGen, $11 million each year, of which $11 million is base funding. This compares to the $10 million included for NextGen in the House bill, of which $8 million is in the base.

There is $15 million in new funding for workforce development scholarships, $2 million the first year of the biennium and $13 million the second year. The bill also amends the workforce development scholarship program to include additional programs of early childhood and transportation, and allows Minnesota State four-year universities to be eligible for the program.

The Senate also funds the Board of Trustee’s workforce request at $3 million, $1.5 million each year to support local partnership programs at Minnesota State campuses. As for campus support, the Senate includes $4 million over the biennium.

In regards to tuition, the Senate bill includes a tuition cap. For the four-year universities, the bill caps tuition at 2% both years of the biennium. For the two-year colleges, the bill caps tuition at 2% the first year and 1% the second year.

The other funding includes $500,000 over the biennium to fund the Z-degree textbook program; $1 million for leveraged equipment acquisition; and an increase of $600,000 each year of the biennium for supplemental aid for operations and maintenance at non-metro two-year colleges.

Over in the House, the full House is expected to take up their higher education bill on the floor yet this week. As a reminder, the House bill appropriates $159 million to Minnesota State, of which $149 million funds a tuition freeze, and $10 million is for Next Gen, the critical technology replacement for the system.

This week we’ve seen long floor sessions as both the House and Senate work to get the large omnibus finance bills off the floor and to the conference committee by May 1. Below is an update of some of the omnibus bills moving through the Legislature.

E-12 Education

Both the House and the Senate E-12 education omnibus bills have budgeted for an increase in spending for the 2020-2021 biennium. The House version would increase spending by $900 million and the Senate version would increase spending by $843 million more than the last budget. Under the House proposal, $521 million would be used to increase the basic funding formula to 3% in the first year and an additional 2% the following year, mirroring Gov. Tim Walz’s request. The Senate increases the formula by less, .5% in the first year and .5% in the second year.

Both the House and Senate have acknowledged the importance of increasing special education aid, ensuring schools are safe, investing in early learning scholarships, recruiting and training more teachers of color, and working to close the achievement gap. The differences lie in exactly how much money has been set aside to fund each priority. The House plan also includes some significant policy changes, specifically regarding the tiered teacher licensure program that was implemented just over a year ago. Their proposal also includes retaining 4,000 slots for those who participate in voluntary preschool programs, which is set to expire under current law. The Senate plan puts a large share into funding school safety initiatives.

Negotiations surrounding the specifics of the funding formula, preschool program funding, school safety funds, and funding for special education are expected between the House, Senate, and Gov. Walz toward the end of session.

Agriculture

One of the smaller pieces of the state budget is the general fund money that goes toward the Department of Agriculture, the Board of Animal Health, and the Agricultural Utilization Research Institute. This year’s agriculture budget proposal in the House asks for $225.17 million, which is more than Governor Walz’s request by $366,000. Most of it will fund the core functions of the Minnesota Department of Agriculture, and some of it will go towards addressing the Chronic Wasting Disease among deer populations in Minnesota, other research, protection services, marketing and development, financial assistance, mental health services for farmers, and bioenergy. The House agriculture bill was combined with the omnibus housing finance bill to better align with the Senate committee structure.

The Senate version of the bill, which had a $258.3 million target, includes agriculture appropriations, housing appropriations, and funding for broadband. In addition to many provisions that mirror the House plan, the Senate version aims to strengthen financial protections for farmers and cooperative grain elevator members to reduce fraud, and it invests in affordable manufactured and modular housing.

Capital Investment

A bonding bill is generally reserved for the second year of a biennium. However, recent history at the Capitol has resulted in smaller bonding bills passing during the odd-numbered year, which is focused on passing a two-year state budget.

Earlier this month, the House Capital Investment committee approved a $1.5 billion package of public works projects for institutions of higher education, water treatment, roads and bridges, and wastewater facilities. House Republicans criticized the cost of the bill, citing the amount of debt the state would have to take on to pay for it. Instead, House Republicans have suggested a smaller bonding bill around $300 million could receive support from their caucus this session.

A bonding bill requires a three-fifths vote of support in both bodies. Therefore, votes from the minority caucus in each chamber will be needed for the bill to pass. A bonding bill needs 81 votes to pass the House, where Democrats currently hold 75 of 134 seats.

Over in the Senate, the Senate Capital Investment committee has not yet met during the 2019 legislative session. Senate Republicans have cast doubt on the likelihood of a bonding bill passing this year, but it’s not unlikely a small bonding bill could be a factor in end-of-session negotiations with Governor Walz, who proposed a $1.3 billion bonding bill earlier this year. In order for a bonding bill to pass the Senate, it needs 41 votes. Currently, Republicans hold 35 of 67 seats.

Taxes

The Senate and House tax proposals vary significantly this session. The House’s tax plan would raise $1.2 billion in taxes while the Senate proposal provides tax cuts totaling $800 million.

The House tax bill seeks to better align with the federal tax system since its overhaul at the end of 2017 through a couple provisions. Major proposals within the bill would:

• Match the federal standard deduction at $24,000 for a married couple
• Expand the working family credit
• Increase the Social Security subtraction
• Allocate $10 million to the “angel” small business investment credit
• Collect a 3% tax on capital gains and dividend income over $500,000
• Increase County Program Aid and Local Government Aid
• Expand Section 179 expensing on qualifying equipment purchases
• Clarify how to collect and remit sales taxes for remote sellers and marketplace providers
• Require income earned by foreign corporations based in one of 35 countries that have been deemed to be tax havens to be treated as domestic corporations for tax purposes

The House DFL has pledged to allocate three-fourths of the new revenue from the tax bill to school spending. Meanwhile, House and Senate Republicans have voiced their concerns regarding the level of spending, which they view as unsustainable, that will occur as a result of the tax increases.

The Senate tax plan is being heard in the Senate Tax Committee this morning. Senate Tax Committee Chairman Roger Chamberlain, R-Lino Lakes, said about the Senate proposal, “A hundred percent of Minnesota taxpayers will see relief, and that is what state needs at this moment in time.”

The Senate bill reduces the second-tier income tax rate by a quarter of 1 percent. There are also tax breaks for business owners, investors, charitable gaming organizations, farmers and senior citizens. Chamberlain said the money for tax cuts comes from several adjustments to the state tax code to align with recent federal changes.

The House is scheduled to take up the tax bill on the floor today.