Minnesota Legislature adjourns, with much of its work undone

The Minnesota Legislature adjourned late Monday night with much of its work unfinished, a day after Gov. Tim Walz and legislative leaders struck a $48 billion deal on the state's next two-year budget.

Despite a tentative compromise that funds schools, parks, public health care and other services for the next two years, the DFL-controlled House and the GOP Senate majority proved unable to pass the bills that put the deal on paper before the constitutional deadline to adjourn Monday at midnight. The two sides were also still debating dozens of policy disagreements on contentious issues ranging from education and paid medical leave to abortion and guns.

House and Senate negotiators met Monday to fill in the details on the leaders' broad framework. With time running out, legislative leaders tentatively planned a special session Thursday to hammer out final budget agreements through a series of conference committees or "working groups." But with no hard timeline after adjournment, it remained unclear Monday when lawmakers would return to the Capitol to complete the work.

Amid the confusion, Walz celebrated an overall budget deal that averted the first government shutdown since 2011, even if it was clear that party leaders still had some work to do to sell Sunday's bargain.

The deal crafted behind closed doors by Walz and Republican and DFL lawmakers would add about 6% more in spending than the previous two years and fund some key priorities of the first-term DFL governor on schools and health care. Republicans would achieve a cherished goal of cutting Minnesota income taxes for the first time in decades.

Walz agreed to cut a middle-class income tax rate by 0.25% while increasing school spending significantly above inflation and enrollment increases.

The deal also forced both sides to swallow uncomfortable compromise. Walz and House Speaker Melissa Hortman, DFL-Brooklyn Park, had to accept less spending than they wanted and did not win a gas tax increase for roads. Senate Majority Leader Paul Gazelka, R-Nisswa, was forced to accept a tax on health care that would have otherwise expired at the end of the year.

Gazelka acknowledged that the deal he negotiated on the health care tax faces significant opposition in the GOP caucus, which has long made opposition to the tax a legislative priority. While the rate would decrease from 2% to 1.8%, the bargain provides no sunset.

"They weren't happy," Gazelka said of his fellow Republicans, some of whom expressed their displeasure publicly.

"I am incredibly disappointed, profoundly disappointed to see that [health care] tax reinstated," said state Sen. Carla Nelson, R-Rochester. Nelson said she's concerned it taxes sick people and that the fund the money goes to has turned into a "growing slush fund for the Legislature that is growing faster than the rate of inflation."

There is also significant dissension within the House GOP.

"If they don't have an open and transparent process and there's a bunch of bad stuff in these bills, we're going to use that [special] session and our floor session as an opportunity to inform the public," said House Minority Leader Kurt Daudt, R-Crown.

The budget deal includes a provision to borrow money for infrastructure projects — which would require a "supermajority" of 81 votes out of 134 — giving House Republicans some leverage over that outcome because their votes will be required to pass it.

But the deal also picked up influential supporters Monday.

The Minnesota Hospital Association made an aggressive lobbying push to keep the health care provider tax in place, even though its members pay the tax.

The Minnesota School Boards Association released a statement of support, saying "Minnesota's students are a key priority in the state budget agreement reached tonight."

Some business groups also endorsed the agreement. But some lobbyists expressed confusion as details of the deal emerged slowly, or in many instances not at all. Much of the work continued — as in the budget talks — behind closed doors.

Walz, Gazelka and Hortman were holding private meetings with a series of state agency commissioners and conference committee chairs Monday evening. They are "finalizing details" of the different budget bills, House DFL spokeswoman Susie Merthan said.

The special session could start Thursday or Friday, she said. But first the leaders need to agree on the fleshed-out budget bills, and the Revisor's Office needs to draft the documents.

That left lobbyists milling around the Capitol throughout the day, scouting for information on what would end up in the final policy bills as a 5 p.m. deadline approached for conference committees to complete their work.

"We went from one cone of silence to 10 cones of silence," said Gary Carlson with the League of Minnesota Cities. Carlson's group supported Walz's plan to spend $30.5 million more on local government aid. Carlson said he heard there will be money in the budget for county and city aid — but had no idea Monday afternoon what those numbers would be.

Others were confused by the agreement on a complicated bill to bring the state's tax system into alignment with the federal government after the 2017 federal tax overhaul.

Despite the uncertainty around getting the budget finished, Walz was ebullient.

"I came back to run for governor to be able to stand there yesterday and bring in a budget deal, standing alongside the Republican majority leader and delivering things that I think make Minnesota better," he said.

Despite the continued partisan sniping, Walz said the budget deal is evidence of a new tone in St. Paul: "It may sound old-fashioned and cliché, but this is nothing more than relationships. Governance is relationships, negotiations are relationships and to stand there [Sunday] is a big deal."

Overall, given the income tax cut and the lower health care tax, government will take in less money than it would on the current course, despite a 6% increase in spending.

Given years of surplus, Walz said it's appropriate: "They have a pretty strong argument here."

But he said he's confident the deal meets his own goals: "I think looking to the horizon as a progressive, there's certainly more things that I think we could have gotten out of this, but I think the fundamentals are still in place. The economy continues to grow, we still have a $2 billion rainy day fund, and the investments in education and — I cannot stress enough — the permanent removal of that sunset [on the health provider tax] was huge."

Staff writer Judy Keen contributed to this report. J. Patrick Coolican • 651-925-5042

Torey Van Oot • 612-673-7299

Jessie Van Berkel • 612-673-4649