Minnesota policymakers passed a long-awaited infrastructure package when they convened on October 12 for their fifth special session of the year. The legislation approved nearly $1.9 billion
worth of capital investment projects to support economic growth and improved quality of life in communities across the state, and importantly, includes a set of projects specifically focused on communities of color.
While capital investment makes up the bulk of the bill, it also includes some supplemental budget provisions largely aimed at the effects of the pandemic and other recent events, and one major tax cutting provision.
This legislation was negotiated against the backdrop of perhaps the biggest health and economic crises of our lifetimes, which have also resulted in large state revenue shortfalls. However, the bill’s tax cuts and some of its fund transfers could add to the state’s challenges in funding essential services in the future.
In the current FY 2020-21 budget cycle, the bill has $97 million in new general fund spending and $90 million in tax cuts, which is more than offset by fund transfers, federal dollars, and recognizing some other budget savings. It reduces the state’s general fund budget deficit by $29 million. However, in the next biennium, the bill has $100 million in additional spending and $118 million in tax cuts, and in total adds $247 million to the state’s budget shortfall.
|General Fund impact of October special session legislation
|| FY 2020-21
|| FY 2022-23
|Capital investment projects and bonding debt service
|| $52 million
|| $89 million
|Supplemental budget provisions
|| $45 million
|| $11 million
|| $90 million
|| $118 million
|Spending offsets and shifts
|| -$216 million
| $29 million
|| -$29 million
|| $247 million
Minnesota policymakers typically pass a major capital investment bill every two years. It’s more commonly called the “bonding bill” because the majority of the capital investment projects are funded by issuing bonds, which spreads the cost of the projects over time.
We are especially pleased that two provisions that advance racial equity were included in the bill.
- Historic investments in racial equity. The bill takes an important step toward more equitably distributing state funding for capital investment by including $30 million for capital investment projects for organizations led by and serving Black, Indigenous, and people of color (BIPOC) communities. Both Governor Tim Walz and the Minnesota House included such targeted funding in their bonding proposals, recognizing that the process for accessing bonding money can be complicated and perpetuate existing disparities among communities in access to resources.
- Equitable hiring practices. The bill sets hiring goals for capital projects funded by general obligation bonds. It requires such projects to follow the same region-specific goals for hiring women and BIPOC workers that other employers that enter into a contract with the state of Minnesota must work toward.
Other highlights of the capital investment portion of the bill include:
- Critical funding for housing. The bill includes $100 million in projects to create and preserve homes, and $16 million to maintain public housing for low-income Minnesotans.
- Transportation investments include a variety of ways that people get around. About $680 million was included for transportation projects across the state. Much of this goes to local roads and bridges and trunk highway improvements. The bill also expands the ways Minnesotans can use buses, bikes, and their feet to get to work, school, and other destinations through provisions including Safe Routes to School; other investments in biking and pedestrian infrastructure; rapid bus lines in the Twin Cities; and funding for Greater Minnesota transit. These provisions have important racial and economic equity implications. People of color are much more likely to rely on public transit, and high-poverty neighborhoods often lack good access to good jobs. Move Minnesota estimates that the rapid bus lines will save transit riders almost one million hours in commuting each year, a real improvement for communities that have typically seen underinvestment. Investments in transit also are an important strategy to counter climate change’s threat to our economy and well-being.
- Safe drinking water. The bonding bill includes $269 million for clean drinking water, sewer systems, and other investments in clean water in communities from Austin to Itasca to West St. Paul.
Supplemental budget items
The special session legislation includes $45 million in supplemental budget provisions for FY 2020-21 and $11 million for FY 2022-23. These include funding for a wage and benefit increase for personal care attendants; services for people living with mental illness, developmental disabilities, and chemical dependency; testing and storage of sexual assault kits; to cover costs of the state response to the civil unrest that followed the killing of George Floyd by Minneapolis police; and for overtime and staffing costs at the Department of Corrections. Some of this funding reverses administrative cuts to the Department of Human Services and the Department of Corrections made this summer after supplemental budget requests were not approved in earlier special sessions.
Unfortunately, this legislation did not include proposals considered in earlier special sessions to help folks struggling to get through these challenging times, such as an emergency one-time assistance payment for the very low-income families participating in the Minnesota Family Investment Program during COVID-19.
The October special session legislation cuts state tax revenues by $90 million in FY 2020-21 and $118 million in FY 2022-23 from changing tax law to allow businesses to deduct the entire amount of certain capital expenditures in one year
, instead of spreading the deduction over the life of the equipment.
Big drops in state revenue as a result of the economic downturn is the primary contributor to state budget shortfalls. Minnesota needs to be raising state revenues in order to have the resources to fight the pandemic and address the economic impact of the downturn, but these tax cuts add more than $100 million to the size of the state’s FY 2022-23 revenue shortfall.
Fund transfers and budget adjustments
The legislation uses several fund transfers and budget adjustments to offset some of the costs of the bill and minimize the near-term impact on the general fund.
The largest of these is a $105 million transfer from the state’s Premium Security Plan Account. This account was created to support the state’s “reinsurance” plan to provide payments to health insurance to hold down premiums in the individual insurance market. This account’s largest source of funding was a transfer from the Health Care Access Fund, which was created in legislation to increase access to affordable health care. While there is no immediate negative impact of this fund transfer, it is unfortunate that funds dedicated to affordable health care were reduced at time when it is so clear how essential it is that every one of us can get the health care we need.
The bill also recognizes some FY 2020-21 savings resulting from bond refinancing that MMB conducted earlier in the year, and the ability to use federal dollars for certain coronavirus-related expenses, and state Medicaid expenses that otherwise would be funded with state dollars.