• Hstoric Twenty-Day State Government Shutdown Ends: Minnesota Now Open for Business
  • July 22, 2011 | Authors: Richard A. Forschler; Kathryn S. Hahne; John H. Herman; Nancy B. Hylden
  • Law Firm: Faegre & Benson LLP - Minneapolis Office
  • After an historic government shutdown, Governor Mark Dayton signed nine budget bills into law, authorizing appropriations to once again support state government and state services, ending the 20-day shutdown.  In addition, Governor Dayton signed a pension bill, a bonding bill, and the Legacy funding bill.  The special session began slowly on Tuesday, June 19, but quickly turned into a sprint with many bills passed by the House or Senate in a matter of minutes.  While there were recesses to allow the caucuses to discuss the bills, and pauses in the action to await the final draft of the bills from the Revisor's Office, generally the special session ran smoothly to an early morning adjournment.

    The days between the July 14 announcement of a global budget agreement, and the July 19 start of the special session were a bit more contentious.  While both the governor and Republican leadership described the negotiations to complete a budget deal as professional, civil, and courteous, many Democrats complained about being excluded from the process.  The Capitol remained closed to the public, and many observers were critical about the budget being finalized behind closed doors.

    Ultimately, Republicans took credit for preventing a tax increase and implementing reforms in state government; the governor pointed to his success in achieving $1.4 billion in additional spending over and above projected revenues, passing a $498 million bonding bill, preventing across-the-board cuts in state jobs, and defeating social policy changes that he opposes.

    State workers have been called back and parks ordered reopened, but it could take weeks for the state to resume business as usual.  The state has centralized information about the government reboot on www.bereadymn.com.

    New Revenue = New Debt

    The crux of the budget stalemate was the governor's demand for new tax revenue, and the Republicans' refusal to consider any type of new tax.  As the various offers and counteroffers became public, it became apparent the governor was willing to accept various forms of new revenue--including a delay in the payment of school annual aid or the securitization of future tobacco litigation payments--and that the Republican leadership could support new revenue from these sources.  Ultimately, the governor and Republican leaders agreed to support a package that produced $1.4 Billion of new revenue from the K-12 funding shift and "tobacco bonds," along with three conditions sought by Governor Dayton:

    1. A $500 million bonding bill
    2. No action on several social policy issues
    3. No action on a 15% workforce reduction requirement

    Tax Bill

    In addition to authorizing the sale of bonds backed by future tobacco revenues, the tax bill contained the following provisions:

    • An increase in the research and development credit;
    • The establishment of a new science and technology authority; and
    • A new sales tax exemption for equipment and computer software for use in a qualified data center, as well as the electricity used in a data center.

    Health and Human Services

    Although the Health and Human Services budget increased spending approximately $1 billion from the current biennium, the bill actually reduced spending by $1.04 billion from the projected growth rate in this budget area.  The bill contains some reform measures that had bipartisan support, such as repeal of the provider tax.  However, Democrats opposed the bill due to cuts to providers, reduced spending for nursing homes, and cuts to state grant programs.

    Education Finance

    The Education Finance bill contains the school funding shift whereby schools receive 60 percent of their anticipated funding during the biennium, with the rest paid in the next year. The bill also included a $50 per pupil funding increase in the first year and an additional $50 per pupil funding increase in the second year of the biennium.

    The Higher Education funding bill contained double digit percentage reductions from forecasted spending for the University of Minnesota and the Minnesota State Colleges and Universities System, which equates to an 8.8% reduction from spending in the previous biennium.  The state grant program was increased by $21 million, an increase of 7.3% above the forecast.

    Jobs and Economic Development

    The overall funding in this area was reduced by 8.5 percent from forecasted spending, but the legislative concern for job creation resulted in an increase in funding for several economic development/redevelopment programs.

    Transit Funding

    Metropolitan Transit does not anticipate fare increases, route reductions, or substantial employee layoffs as a result of the additional $63 million that is contained in the adopted bill, as opposed to the bill vetoed by the governor.

    Pension Bill

    This pension bill will revise the salary scale and actuarial growth-rate assumptions used by the state's retirement plans.  The bill also authorizes the consolidation of the Minneapolis Firefighters Relief Association and the Minneapolis Police Relief Association with a statewide plan.
    While the budget compromise ends the state government shutdown, it shifts spending obligations to the next biennium and borrows money by pledging future revenue.  Unless there is dramatic improvement in the economy, Minnesota will face large deficits again when it is time to set the 2014-15 budget.