Minnesota Capitol

Legislative leaders and Gov. Tim Walz found common ground on a budget.

And even though no budget was finalized before the Minnesota Legislature adjourned May 17, word of an agreement between DFL and Republican leadership was good news to state Rep. Dean Urdahl, R-Acton Township.

Sort of.

Gov. Tim Walz and the top two Senate and House leaders announced May 17 they had agreed on broad spending targets for the state’s next two-year budget. But lawmakers have many details to hammer out before a special session can be called to approve budget later this month.

The legislative leaders said the governor would call a special session no later than June 14. Walz is required by law to reconvene lawmakers by that date as a condition for extending the emergency powers he has used to respond to the coronavirus pandemic.

“Certainly, it’s good news,” Rep. Dean Urdahl, R-Acton Township, said of the budget agreement. Yet, he said, the fact that so much work still must be done left him unfulfilled and somewhat concerned about the process that will be used to nail down the details of the budget.

The final day of the session left Urdahl to borrow from poet T.S. Elliott, saying, “This is the way the session ends, not with a bang, but a whimper.”

Much of the budget details will be negotiated without a lot of input from the majority of legislators.

“A lot of this now isn’t as transparently done as it would have been otherwise,” he said. “In some instances, just a few people will be putting this together.”

Urdahl said an agreement but no actual passage of budget bills could be blamed in part on the fact that legislators knew they would be called back in to special session to consider the governor’s emergency powers on June 14. Knowing they would be back again in a few weeks anyway created a lack of urgency to get final deals done, he said.

“It’s like having your final exam delayed and you know it’s delayed, so why study?” said Urdahl, a former middle school social studies teacher.

Rep. Glenn Gruenhagen, R-Glencoe, agreed with Urdahl’s concern over the lack of transparency, not just over budget details but the entire legislative session.

“COVID has resulted in committees meeting by Zoom, including limited seating for floor session,” Gruenhagen wrote in an email in response to questions. “This has been frustrating, especially since it has been very difficult for the public to participate in the legislative session.”

Gruenhagen also was much more strident on who should shoulder the blame for the Legislature not getting its work done by end of session.

“The primary disagreement between parties that lead to special sessions is that for every problem, the DFL wants to expand government and raise taxes when Minnesota is already one of the highest taxed states in the nation,” he said. While the state has a projected surplus of $4.2 billion, “the governor and DFL still want to raise taxes approximately another $1.6 billion on an economy already struggling to recover from COVID.”

The task of resolving their differences was harder this year than in 2019 because lawmakers mostly met remotely due to the pandemic and had fewer chances for one-on-one deal-making.

“But you have three people who basically respect each other and are able to work well together despite huge ideological rifts between them,” said Hortman, of Brooklyn Park.

WORK STILL TO BE DONE

The spending agreement — which appears to be around $52 billion but is still a “work in progress,” according to state Management and Budget Commissioner Jim Schowalter — features no new taxes, tax relief for those hardest hit by the pandemic, and spending increases for public schools, the three leaders said.

“It really is a win-win-win budget,” Hortman said.

That feat — increasing spending while providing limited tax relief — was made possible by some $2.8 billion in federal COVID relief money headed to Minnesota, as well as a wider economy that, despite pockets being hammered by the pandemic, is growing, swelling state tax coffers. In fact, there’s so much money that the agreement was able to spread out increased spending on education through 2025, and still leave a chunk of those federal funds unspent as a hedge against the future.

Deciding how to spend the federal funds was one of the main complications in the budget negotiations, the leaders said. The state didn’t get federal guidance on how it can spend that money until last week.

Under the agreement, Walz will control $500 million of that sum to spend on vaccinations, testing and other COVID-related services, while the Legislature will get a say in how the rest is spent.

WHAT ABOUT OTHER BILLS?

The agreement, which all three trumpeted as a bipartisan success in a state with divided government in an era of polarization, says nothing about policies. “I think of this as a numbers-only agreement,” Hortman said.

She said it will be up to a House-Senate conference committee negotiating the public safety budget bill to find common ground and decide which police accountability proposals passed by the House will make it into the final version.

Senate Republicans had resisted the policing package passed by the House, saying they wanted to focus on the budget and allow time to implement a policing bill that passed last summer following the May 2020 death of George Floyd, a Black Minneapolis man who died in police custody. The new package was spearheaded by the legislative People of Color and Indigenous Caucus, which had hoped to build on the momentum of the murder conviction last month of former Minneapolis police officer Derek Chauvin in Floyd’s death.

“Depending on who you’re talking to, we’re either way apart or close,” said Gazelka of East Gull Lake. “Because there are some things that we think we can do, but again, some people would want a lot more, some people want less.”

Hortman said she also hopes — but is uncertain — that a public works construction bill, often referred to as a “bonding bill,” could be agreed upon by June.

In addition, Walz said he and lawmakers would continue trying to negotiate an agreement to phase out the moratorium on evicting renters that he imposed on landlords during the pandemic. That moratorium is scheduled to end when his emergency powers expire, and state leaders want to prevent an avalanche of evictions.

GOP TOUTS NO NEW TAXES

Republicans successfully resisted calls by Walz and Democratic lawmakers for income tax increases on the wealthy and some other taxes to provide continuing funding for education, saying there was no need for a tax increase when the state was facing a $1.6 billion surplus and had $2.8 billion in federal coronavirus aid coming.

“Promise kept,” Gazelka said of the Republicans’ no-new-taxes pledge.

One of the sticking points in the negotiations was whether the state should fully exempt federal Paycheck Protection Program loans and unemployment insurance benefits from state taxes or impose caps to capture some of that revenue from better-off companies.

Gazelka scored a partial victory by exempting PPP funds from state taxes, which Democrats agreed to as part of a plan to also waive the state tax on up to $10,200 in unemployment benefits. It was Democrats who first sought to marry the two.

May 17 was the state tax filing deadline, and filers were required to file their taxes as if the agreement doesn’t exist (because it’s not law yet). It remains unclear whether those eligible will have to re-file their taxes or state revenue officials will be able to automatically send out refunds.

Brent Schacherer contributed to this story.