Minnesota Budget Squabbles Might Spur Lawsuit

Minnesota’s budget negotiation was characterized by threatened vetoes and missed deadlines. After a 75-hour special session and the signing of nine budget bills in late May, the showdown between the governor and the legislature should have ended. Instead, the stakes have been raised.

Last Friday, the Minnesota Legislative Coordinating Commission passed a measure to seek outside legal representation against Governor Mark Dayton (DFL) after he vetoed $130 million in funding for the legislature. The governor vetoed the funding, with the cut to take effect for the fiscal biennium beginning on July 1, to attempt to force the legislature to renegotiate aspects of the $46 billion biennial budget, primarily concerning tax modifications.

A tax bill in question, House File 1, included several tax cuts that Governor Dayton opposed. He signed that bill, although he objected to the following stipulations:

• Estate Taxes: The bill raises the exemption for 2017 from $1.8 million to $2.1 million. Estate tax exemptions will rise $300,000 annually, with the exemption set at $3 million for 2020 and all future years, but the increased exemption is still below the federal exemption.
• State General Levy Tax: The levy tax is an extra, state-level property tax applied to businesses (and seasonal recreation properties, such as cabins) in Minnesota. The “levy” refers to the amount of tax revenue the state intends to collect that year. In the past, the amount collected was adjusted annually using an index based on government expenditures, meaning that the revenue collected from the tax rose each year. The new bill eliminates the inflation adjustment, functionally capping the revenue collected in future years.
• Tobacco Taxes: The excise tax rate for tobacco products is set at a uniform standard of 15.2 cents per cigarette, compared to the previous statute that required annual indexing of the excise tax rate. The legislation also slashed the tax rate on premium cigars from $3.50 per cigar to $0.50 per cigar.

Governor Dayton argued in his correspondence with Speaker Kurt Daudt (R) that he only acquiesced to the tax bill because of a provision that would have defunded the Minnesota Department of Revenue if he refused to approve the $650 million in tax cuts. While the governor initially intended to enact the tax bill without a signature, he eventually did sign it to avoid legal ambiguity. 

The legislature will require a special session to restore its funding. Governor Dayton said he will only call a special session if certain provisions of the budget are removed, including the tax modifications he opposes. The other items of contention include a provision that would bar undocumented immigrants from obtaining driver’s licenses, and a provision that alters the licensing process for Minnesota teachers. Like the contentious tax modifications, both these provisions are in bills that the governor has already approved.