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As legislative leaders meet to hash out spending targets, House and Senate remain miles apart on budget bills

The DFL-controlled House and Gov. Tim Walz back budgets that include significant tax increases, while the GOP-controlled Senate has taken a no-new-taxes stance.

Minnesota House Speaker Melissa Hortman, left with House Majority Leader Ryan Winkler
Minnesota House Speaker Melissa Hortman, left with House Majority Leader Ryan Winkler: “If they have asked for world-class schools, we have the capability to provide that and we intend to do that.”
MinnPost photo by Peter Callaghan

When she came out for a short press briefing Thursday, Minnesota House Speaker Melissa Hortman summarized the final weeks of the 2019 legislative session like this:

“It’s game time.”

By meeting a mutual and self-imposed deadline of May 2 for each house of the Legislature to approve their own budget bills — a feat not to be downplayed — the Legislature now faces a tougher task. By Monday, Hortman, Senate Majority Leader Paul Gazelka and Gov. Tim Walz are to agree on what they call joint budget targets: the dollar amounts for each of 10 budget omnibus bills that can be spent by joint House-Senate conference committees.

Hortman, a DFLer from Brooklyn Park, agreed that this deadline is the toughest. It’s the first one that requires agreement on numbers by both DFLers and Republicans.

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“I expect it will be a very long weekend for Sen Gazelka, Gov. Walz and I, our nonpartisan fiscal staff and other legislative leaders,” she said. “We are prepared to come in early and stay late and get this work done for Minnesotans on time and in public.”

A new tone?

Here’s why it is so tough. The DFL-controlled House and Walz drafted budgets that included significant tax increases, while the GOP-controlled  Senate has taken a no-new-taxes stance. How do they reconcile the spending levels that result? How do they compromise between a House spending level of almost $50 billion over two years with a Senate spending level of almost $48 billion without any increased revenue?

“I think there’s every reason to be skeptical, because history has proven that to be a pretty safe bet,” Walz said this week. “But we’ve got new folks here, there’s a new tone.”

Senate Majority Leader Paul Gazelka, R-Nisswa, said something similar before heading into the first, formal three-party meeting with Hortman and Walz.

“Obviously, we’re a long ways apart.” Gazelka said “But at the same time that’s not unusual in Minnesota politics. But because of the players who have come to the dance here — the governor, the speaker and myself — I do believe we will find a pragmatic way to get through.”

Senate Majority Leader Paul Gazelka: “Obviously, we’re a long ways apart.”
MinnPost photo by Peter Callaghan
Senate Majority Leader Paul Gazelka: “Obviously, we’re a long ways apart.”
Both Walz and Gazelka gave tone-setting credit to a deal reached this week to jettison the disastrous in-house MNLARS licensing system and instead purchase an established computer system used in other states. It will mean spending even more money for the licensing system, but it emerged from an outside examination and signals a willingness to set aside the rancorous politics the cost overruns have fed. “That’s the kind of thinking that can get us to finish line,” Gazelka said.

“I’m under no illusions; compromises have to be made,” Walz said earlier in the week. “I think the tone is still very positive. People need to stake out their positions.”

Trying to ‘thread the needle’

About those positions: Walz frequently references his campaign for governor, during which he says he was clear about his goals if elected. He said he would look at gas tax hikes and general tax hikes to put more money into education, health care and roads. The fact that he won easily means — to Walz, at least — that a healthy majority of voters agree with him.

“We asked Minnesotans to put us in this office, based on making education available to all; that health care is a basic human right; and we can do better — and that we can prosper from Warroad down to Winona,” Walz said.

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Walz released his budget plan first, on Feb. 19, and while the House and Senate have had top-line spending totals for various budget segments, the details haven’t become clear until the last several weeks. That’s allowed Walz to needle the Senate GOP for finally having to replace rhetoric with details.

“I see my friends in the Senate saw how very difficult it is when they put out a human services bill and actually having to tell people what they were going to cut rather than saying, ‘I’m going to save you money and give you the same services,’” Walz said. Continuing with his own rhetoric — that the Senate GOP has become the “Caucus of No,” he said: “I’m willing to compromise with them. But they view compromise as, ‘No, no, no, no’ — four ‘No’s.’ And then say, ‘No, no, no. We went to three no’s and that’s a compromise.”

But Walz won via a statewide electorate. When specific subsets of that electorate — state Senate districts, for example — are broken out, the calculus looks different. And it is those subsets that interest Gazelka, who will go into 2020 defending a 35-32 majority. The best way to keep it, Republicans believe, is with a no-new-taxes record. And that doesn’t just mean no general tax increases; it also means no gas tax increase; and no more of what Republicans like to call the “sick tax”— the 2 percent health care provider tax that dies at year’s end unless extended by a majority of the House and Senate.

Without that revenue going forward, Senate budget writers had to scramble to pay for current health care and human services. There are service cuts in their budget, but an existing surplus in the Health Care Access Fund softens the impact.

Gov. Tim Walz
MinnPost photo by Peter Callaghan
Gov. Tim Walz: “I think there’s every reason to be skeptical, because history has proven that to be a pretty safe bet. But we’ve got new folks here, there’s a new tone.”
But in a letter to legislative leaders, Walz’s budget chief Myron Frans described the Senate budget this way: “The Senate Health and Human Services (HHS) Bill does not solve the $919 million deficit that is created if the two percent provider tax is not extended beyond 2019. Instead, the Senate Bill shifts the deficit from FY 2023 into FY 2024, conveniently beyond our four-year budget planning time.”

On Thursday, Walz appeared with two dozen hospital administrators from across the state who said they need the revenue from the provider tax to maintain services. 

Gazelka, however, asserts his caucus’ budgets are sound. “This is a very thoughtful bill, dealing with very, very difficult situations,” he said of the same health and human services spending plan that Walz criticized. “But the last group that we are constantly talking about is the taxpayer. That’s the balancing side of this. All the generous benefits that we all want to provide is paid by somebody and that’s the taxpayer. We’re trying to make sure we thread that needle.”

Wide gulfs remain

Another area where House and Senate budgets are far apart is education. Walz and Democrats have proposed across-the-board increases in support for school districts of 3 percent and 2 percent in the two-year budget cycle. Republicans in charge of the Senate followed with 0.5 percent and 0.5 percent. When asked about the separation — which equates to nearly $700 million — Senate Education committee chair Carla Nelson, R-Rochester, said it does what current revenue allows. “Our education budget, even with its 5.1 percent increase, does not rely on increased taxes,” Nelson said.

Gazelka has said repeatedly that the Senate GOP budgets spend 5 percent more than the budget the Legislature approved two years ago. That’s $2.2 billion more, he said. With a projected $1 billion state surplus, Gazelka says no additional taxes are needed. “The gas tax is one of a number of taxes that will hurt the middle class and lower income,” he said. “We’re not going to do a gas tax. I’ve made it very clear. That’s not a direction we’re going to go.”

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There is a connection between a gas tax hike and the general fund budget. To help get some money into road and bridge repair and construction in 2017, the GOP-controlled Legislature sent half of the sales taxes on car repair and replacement parts to the transportation budget. That money had gone into general fund expenditures and Walz wants that to be the case again. But seven cents of his 20 cent gas tax hike (rolled out at a nickel a year for four years) is needed to replace that money in the transportation budget. And that money is spent by the governor and DFL House on general fund expenditures. Without it, their budgets don’t work.

Hortman, like Walz, sees a mandate in the DFL’s huge gains in the 2018 election. “If they have asked for world-class schools, we have the capability to provide that and we intend to do that,” she said of voters. The same is the case for health care and economic security for families. “We need to drive very, very aggressively,” she said. “Right now we don’t take our feet off the accelerator, actually we push down a little further.”

By the end of the day Thursday, Hortman said she expected to know the differences among the governor, the Senate and House on targets for the state general fund, transportation trust fund and health care access fund. Even that could be harder than it might seem, though. In Frans’ letter to legislative leaders, he complained about some of the assumptions in the GOP spending bills.

“If the Senate declines to make clear its budget choices in their bills, we will lack the common foundation on which to arrive at a mutually agreeable position,” Frans wrote. “The Governor expects the Senate to provide a budget that is sustainable and based on sound budget policy. The Governor must be able to compare fiscally responsible positions that do not spend beyond the state’s means, cripple the operations of state agencies, or shifts budget deficits into the future.”

Hortman has rebuffed requests to say what is non-negotiable for her caucus, saying it isn’t helpful in negotiations to publicize “bright lines” that can’t be crossed. But she said she couldn’t see a final deal that didn’t have some increases in transportation revenue. “It is not realistic to believe that we won’t get out of here with substantial additional transportation dedicated revenue,” she said. “It’s just not realistic.”

What about non-budget items?

What about all the non-budgetary items that have populated much of the session? Walz and DFLers in the Legislature have pushed items such as paid family leave, gun safety measures, a move to let felons vote once released from prison, a public option for health insurance. Republicans have been pushing stricter oversight of the state’s subsidized child care system and new limits on abortions.

Gazelka’s plea from the start of session has been for everyone to lower expectations and understand the reality of divided government. “We’re careful not to put too many volatile issues in our budget bills,” he said. “There are some that will no-doubt collide and the House has the same thing. But at the end of the day, those things will have to move off the budget bills so we can pass a two-year budget. I want to fight for certain things, and I will. But in the end if one side or the other is not going to give we have to pass a two-year budget.”

Hortman agreed. Sort of. Gazelka, she said, also needs to put away his expectation that he can win a budget that doesn’t take care of problems in the safety net, in congestion, or in the affordability of healthcare.

To add to the pressure leaders face over the weekend, House Majority Leader Ryan Winkler tossed out a not-so-fun fact: If they succeed in reaching deals that allow the 2019 session to adjourn on time on May 20, it will be the first time a divided Legislature has accomplished that in two decades.