What can Minnesotans expect from this legislative session?

Minnesota’s legislature convenes tomorrow. What can we expect in terms of economic policy?

Not too much, perhaps, given its partisan composition. The House remains tied between Republicans and Democrats and the DFL maintains its one-seat majority in the Senate. Even so, WCCO spoke to party leaders and offers a useful summary. Sifting through some of the vagueness — we are told that Senate Republicans believe they “can work with Democrats on bipartisan solutions on fraud, affordability and education” — here is what they say about major issues in economic policy.

Immigration

DFL

Immigration is not solely an economic issue and, under the Constitution, state governments have no power to make immigration policy. Nevertheless, the DFL seems determined to prioritize the issue this session, specifically by:

…providing economic relief for small businesses that have suffered as a result of the surge.

There are also proposals expected that would provide relief for small businesses and rental assistance for people who were too scared to leave their homes. 

We would not support yet another program of government handouts given the ongoing epidemic of fraud in such programs and the state’s looming budget deficit. A possible compromise might be for businesses receiving such aid to be required to use E-Verify, as in Alabama, Arizona, Florida, Georgia, Mississippi, North Carolina, South Carolina, Tennessee, and Utah.

Fraud

Fraud is an issue that concerns many Minnesotans, which is hardly surprising given the sheer scale of it in our state.

DFL

WCCO reports that DFL House Leader Zack”Stephenson “also said fighting fraud is a priority.” This is a welcome reversal of the House DFL’s position last session, where they torpedoed a plan supported by Republicans and Senate DFLers to establish an Office of Inspector General. Stephenson:

…wants the Legislature to consider overhauling how programs are administered, which right now is largely through private companies that bill the state for the services they provide.

Does this mean that administration of these programs will be brought in-house? Let us see. This would be a big shift which is unlikely to get anywhere this session but might return if circumstances are different after November.

Republican

While the DFL is prioritizing immigration as an issue, the Republicans are leading with fraud. “Republican lawmakers, who have been sharply critical of Gov. Tim Walz’s administration’s handling of fraud in public programs, think they’ve had the upper hand on the issue,” WCCO reports. “Finding solutions, both House Speaker Lisa Demuth and GOP Minority Leader Mark Johnson say, are key priorities for their caucuses.”

Some fundamental thinking seems to be going on:  

Demuth told WCCO she thinks it’s time to take a closer look at some of the programs the state is paying for and evaluate if they should be taxpayer-funded in the first place.

“Not saying anything specific at this point, but we really have to fine-tune and look, you know, when Housing Stabilization Services, when there were dollars given to that, and the bulk of that was fraud, so the governor ended that program. You have to question whether or not that was the government’s responsibility or the state’s responsibility,” Demuth said. “We’re headed toward a deficit. That means that we are not raising taxes on Minnesotans anymore. Minnesotans are overtaxed as it is. We have to really look at finding ways to have cost savings within the government.”

On this she is absolutely right. Even so, this, too, would be a big shift which is unlikely to get anywhere this session, but might return if circumstances are different after November.

“Republicans will again push for a new Office of Inspector General to independently investigate fraud,” WCCO reports, and we wholeheartedly support this.

…The plan received bipartisan support in the Senate, but it didn’t clear the House. She thinks both parties can work together to fix the problem.” 

“Fraud is not Democrat or Republican. As demonstrated by our Senate colleagues, too, that’s clearly on the top of mind for everyone,” she said. 

There is some potential for movement here, but it all depends on how sincere the House DFL’s conversion to concern about fraud actually is.

Budget

DFL

This is not a budget year, so the legislature doesn’t need to pass one. Even so, with the state’s finances in poor shape, there are likely to be discussions.

“The current two-year budget is already enacted with a potential future deficit in mind, but Democrats fear federal funding cuts from the Trump administration could force more tough financial decisions,” WCCO writes.

“We also need to make sure that we are mindful of the budget and the incredible unpredictability of this federal government and this White House, who continue to suggest that they’re going to take money from the state’s budget if they don’t get what they want,” [DFL Senate Majority Leader Erin] Murphy said.

The state’s own forecasts show that economic uncertainty is not a driver of Minnesota’s poor budget outlook. The real culprit is runaway state government spending, and this needs to be brought under control. That battle will likely be fought after the election, with either spending cuts or tax hikes depending on who wins.

Bonding

Republican

This is a bonding year, which is “an informal, traditional term for even-numbered years in the legislative biennium focused on passing a ‘bonding bill’—legislation authorizing state debt for long-term infrastructure projects like roads, bridges, and public buildings.”

WCCO reports that Senate Republican leader Mark Johnson “thinks there is room for a bonding bill funding infrastructure projects that requires GOP votes to pass.” My colleague, Martha Njolomole, has counseled caution here.

Conformity

Republicans and DFL

The federal “One Big Beautiful Bill” that passed Congress last summer made a number of changes to taxes. How should Minnesota react?

Rep. Demuth says that “conformity” — aligning the state’s tax code with updates federal tax laws — is “another top priority for Republicans,” WCCO reports. Some states automatically do this, but Minnesota does not.

“The federal no tax on tips, no tax on overtime, even into the education space that federal tax credit for education choice, we would have to opt into all of those things,” Demuth said. “That could tee up a partisan fight,” WCCO reports, “but Demuth hopes the provisions, because they focus on affordability, would attract Democrats’ support.”

Some of these changes, like no tax on tips and no tax on overtime, are bad policy in and of themselves. They may be permissible in Minnesota, just about, as conformity measures.

Overall

With elections in November, it is most likely that this session will be conducted with an eye to those. Don’t expect anything big besides the grandstanding.