As a special session looks increasingly likely at the Legislature, DFLers walk away from tax hikes

Wednesday is when the tone changed at the Minnesota Capitol, from talk about finishing the Legislature’s 2021 regular session on time to thoughts about what happens when it doesn’t finish on time.

May 17 is the deadline for adjournment as set in the state constitution. But the only deadline with consequences is June 30 at midnight. That’s when the current budget expires — and when the state runs out of money. Previous reliance that the courts could order essential services to continue went away with a 2017 state Supreme Court decision that emerged from a previous budget battle. Only the Legislature can appropriate money, ruled the court in The Ninetieth Minnesota Senate v. Dayton, an opinion written by Chief Justice Lorie Gildea.

So June 30 is real. May 17 is not.

One other factor has negated any political or legal pressure on the Legislature and Gov. Tim Walz to make the compromises needed to bridge the divides separating the nation’s only divided Legislature: Under state law governing emergency powers enacted in response to COVID-19, Walz must call the Legislature into special session whenever he extends a peacetime state of emergency. He’ll do that Friday, while the regular session still has three days left, and he’ll most likely do it again on or around June 14.

So that, then, is the date when the budget and policy bills could pass. That leaves two scenarios for what happens between now and Sunday:

If Walz, Senate Majority Leader Paul Gazelka and House Speaker Melissa Hortman reach an agreement on the size of the two-year state budget — an amount likely to be in the $50 billion range — legislative committees could spend the time between the end of the regular session and the start of a special session working out the many spending and policy disagreements. 

If the trio of leaders — two DFLers and one Republican — don’t agree on the size of the budget, then the current state of uncertainty remains, with no deadline pressure to hurry things along, at least until June 30.

‘Major roadblocks to navigate’

Up until Wednesday, leaders took a “We Can Do It” public stance. That’s when the narrative changed to: “We Could Maybe Do It (But We Probably Won’t).”

“Things really sped up on Monday,” Hortman said in reference to the release of detailed guidance by the U.S. Treasury on how the state can spend $2.8 billion in direct grants under the federal American Rescue Plan. “But as you are aware, we are in the last few days of session, so it will be very difficult to finish on time given the logistics of putting the bills together.”

Even if an agreement was in hand, which it is not, the staff would not have time to prepare bills that are hundreds of pages long, the Brooklyn Park DFLer said.

“It’s possible that we get done on time. There are also some major roadblocks we have to navigate through,” Gazelka said. “To get a budget done when we are so far apart … requires both sides to take some risks. There are things both sides will just have to live with.

“We’re trying to get done on the 17th but we know there’s another date out there that we could be aiming for,” Gazelka said.

“The good news is we’re talking to each other rather than over each other, which sometimes happens,” Gazelka said. (Hortman quipped Wednesday that negotiations are most productive “when the two gentlemen I deal with move away from the microphones.”)

Only after budget targets are agreed to can the leaders start seriously weighing where the session will come down on policy issues such as police reform, how they spend federal dollars, clean car emission standards, governor’s emergency powers and how to ramp down from the eviction moratorium.

Walz said he didn’t want to predict yet that the work wouldn’t get done by the constitutional deadline but said special sessions have become the norm in the Minnesota Legislature.

“You need deadlines,” he said. “At a minimum, by Monday, we should have a clear understanding of what our principles are around the budget; where we’re going to invest that money in recovery; an agreement on taxes that is ready to be locked up.”

Walz said he envisioned lawmakers working out details and decisions before a special session is convened, allowing it to last hours rather than days. But he also said he fears that scenario will remove the urgency over police reform that’s built since the conviction of Derek Chauvin for murdering George Floyd and the killing of Duante Wright by Brooklyn Center police. 

“A lot of folks believe that if we stretch this thing out, a sense of urgency becomes less and it’s easier to go home and pretend everything is okay,” Walz said during a press conference with religious leaders urging action on the DFL policing reform package.

DFLers concede that tax hikes might be off the table

In 2019, the budget negotiations logjam broke when Gazelka changed a caucus position on the extension of the health care provider tax, which would have left a $1.4 billion hole in the budget had it not been approved. 

That made it possible for him and the DFL leaders to resolve all the other issues. What is the equivalent of the provider tax in 2019?

Hortman said it is the GOP position against additional policing legislation. Republicans say it is the DFL’s continuing push for tax hikes of a billion dollars or more, despite a projected budget surplus, a filled-to-the-brim rainy day account and an $8 billion influx of money from the federal American Rescue Plan.

“That is a key number that must break for us to get done on time. I believe they’ll see the reasoning of not having a tax increase but, that’s part of negotiations,” Gazelka said.

That might still happen, but DFLers didn’t announce that, citing the “cone of silence.” They got pretty close, however.

House Majority Leader Ryan Winkler said Wednesday that while DFLers think the tax hike — primarily a new tax tier for high earners — is needed to provide ongoing funding for new spending in schools and social programs, it might not be needed for this budget. “In the long run we need the fifth tier, we need ongoing revenue, to meet those commitments,” the Golden Valley DFLer said. “The federal funds, in this moment, could allow us to fund schools, fund health care without new revenue on the table right now.”

That has been true since the American Rescue Plan passed, which passed without any GOP votes in Congress, as Walz frequently notes. But it was official Monday and came with news that the state will receive $256 million more than had been predicted.

Kent compared the situation to three-dimensional chess, to see which dollars can be spent where, whether they can free up state revenue for other uses, whether it can be done in a way that keeps budgets balanced in the future. “In theory, you could do that without raising taxes, but that’s the challenge we’re in,” she said.

During a press conference calling on Walz and DFL leaders to immediately pass tax forgiveness on paycheck protection plan loans and the $600 unemployment top off, House Minority Leader Kurt Daudt said COVID emergency sessions lessens the pressure on lawmakers.

“We will be back here on June 14, and because we will be back here on June 14, we don’t seem to have the urgency to get the budget done by Monday at midnight,” Daudt said. that leaves those owing taxes — taxes that will likely be forgiven  — to pay the money in hopes of getting a refund later.

Hortman said one worry about negotiations is that there hasn’t been a big blow up yet, what she called “an Iron Range Walkout.”

“There’s a lot of dramatics that are typical of end-of-session negotiations that haven’t happened yet, which probably indicates that the light at the end of the tunnel at this point is an oncoming train and not the end of the tunnel,” she said.