On-time finish looking unlikely as Legislature's session nears end

Gov. Tim Walz marked the final stretch of end-of-session budget talks Monday by lamenting how far apart legislative leaders remained and how little time is left to strike an accord.

Leaders have yet to agree on big-picture budget numbers, a step they had hoped to achieve last week. That makes the chances of an on-time finish before the May 17 adjournment deadline increasingly slim. And Gov. Tim Walz on Monday said that budget negotiations have yet to encompass any policy proposals and instead remain fixed on "dollar amounts."

"It's incredibly frustrating to me ... that we wait until the last minute. But that's a bit of the nature of it, and it's still going," said Walz at a news conference in St. Paul, where he urged lawmakers to increase Child Care Assistance Program reimbursement rates. It was the latest in a series of press events Walz has held to push for his spending and policy priorities.

New federal guidance Monday on how to spend pandemic relief money did little to hasten slow-going budget talks. Minnesota leaders found out the state government is getting more than $2.8 billion from the American Rescue Plan, about $200 million more than initially anticipated.

Disagreements over how to use the federal dollars, and who is involved in that decisionmaking, are part of the final negotiations of the state's next two-year budget. But instead of coming together over the news of greater-than-expected federal aid, leaders of the DFL-majority House and Republican-led Senate focused on their own political priorities Monday.

Republican lawmakers quickly pressed for action on tax breaks after President Joe Biden's administration announced state and local governments could start getting the dollars within days.

Senate Majority Leader Paul Gazelka, R-East Gull Lake, said the state should give tax breaks to businesses that got forgivable Paycheck Protection Program (PPP) loans, and to individuals who received the federal $600 weekly supplemental unemployment benefits. He also reiterated his opposition to any tax increases, saying with an additional $200 million coming, "there are zero reasons, absolutely none, to ask for more money from Minnesotans."

House DFL leaders meanwhile demanded lawmakers pass the police accountability reforms that have emerged as a top Democratic policy priority this session and opposed budget cuts they said would lead to teacher layoffs.

"With increased federal aid coming to Minnesota and the increased flexibility in how those funds can be used, we can and should fully fund education to help our children recover from learning loss and mental health challenges arising out of COVID-19 and distance learning," Democratic House Speaker Melissa Hortman said.

Leaders in the DFL-led House and GOP majority Senate, as well as Walz, have all said they want to conform the state tax code with the federal government's approach to the unemployment insurance benefits. The federal government decided people do not have to pay taxes on the unemployment benefits up to $10,200, and also opted to make the PPP loans tax-exempt.

Rep. Greg Davids, the Republican lead on the House Taxes Committee, reiterated Gazelka's call for fast action on tax breaks.

"The clock is ticking. Businesses' taxes were due nearly two full months ago, and the extended May 17 tax filing deadline is coming up quickly," he warned.

Unlike the Senate GOP, Minnesota Democrats want to make businesses that received more than $350,000 in PPP loans pay some taxes. Walz is also open to that measure.

"I think the question is when we have got industries that made massive amounts of money, made massive CEO salary bumps on [PPP loans] I think I would like to see us use that money for child care development," said Walz.

Even before they got the federal guidance Monday, Senate Republicans had proposed various ways to spend the American Rescue Plan dollars. They want to avoid a situation where Walz's administration controls how the state uses its portion of the money.

"It's not the role of the executive branch to spend the money," Gazelka said earlier. "And we don't think you get the best bang for the buck when one man is deciding how to spend everything."

Hortman said last week that getting the federal numbers at this point in the session makes it difficult to include them in budget negotiations.

"It's a large amount of money and so I don't think we're going to have complete clarity, even if we get a little bit more federal guidance," she said, adding, "There needs to be a public process where the public is consulted and weighs in. But what that exactly looks like, I don't know."

Walz is poised to extend his emergency powers for another 30 days, which means legislators will be back in mid-June for a special session.

"That gives us a little bit more time to have that conversation," said Hortman, of Brooklyn Park.

State leaders discovered Monday that Minnesota was getting more than expected from the relief package, but they also found out state revenue in April was 6.4% less than projected, about a $189 million drop.

However, Minnesota Management and Budget Commissioner Jim Schowalter indicated in a memo to state leaders that the dip is due to people delaying their income tax payments with the May 17 deadline extension. He noted that in fiscal 2021, state revenue is still $374 million more than anticipated.