A Look Into 2016 Legislation Impacting Minnesota Businesses

With 2016 off the ground, Minnesota business leaders wonder what legislation may impact them in the year ahead.  This past December, the commissioner of Minnesota Management and Budget (“MMB”) published the state’s Budget & Economic Forecast.  This forecast projects future economic conditions and sheds light on budget parameters from which the Minnesota Legislature will work in producing new legislation.  It is important to note that MMB will publish an updated Budget & Economic Forecast in February this year, which, in all likelihood, should resemble the figures of the December forecast.  While both the December and February figures will provide the Legislature final guidance, the December forecast provides a reliable snapshot of the budget outlook.  Let’s explore Minnesota’s budget outlook and the highly anticipated legislation that could impact businesses across the state.

Budget for FY 2016-17

Minnesota is sitting on a large pile of extra cash, due in large part to being one of the highest taxing states in the nation.  Based on MMB’ December forecast, the revenues in fiscal years 2016-17 are expected to be $42.718 billion, which is $90 million higher than earlier anticipated.  On the other hand, expenditures are now projected to be $41.585 billion, which is $249 million lower than originally estimated.  Additionally, higher actual revenues and lower actual spending in 2015 left Minnesota with a $682 million balance at the end of the year, which transferred over to 2016.  Ultimately, Minnesota’s surplus balance for FY 2016-17 is projected to be around $1.871 billion based on December’s forecast.

Of this $1.871 billion balance, Minnesota law directs MMB to allocate $71 million to Environmental Funds in the state and then 33 percent of the remaining balance, which winds up being approximately $594 million, to the budget reserve.  After these allocations, the available general fund budgetary balance for FY 2016-17 is projected to be around $1.206 billion based on December’s forecast.  It is yet to be seen how the legislature will utilize this surplus, though many expect tax cuts and a bonding bill to be hot items, both of which could benefit Minnesota businesses.

Tax Bill

The budget surplus leaves room for taxes to be cut in 2016, which would be a welcomed relief for many Minnesotans and businesses across the state.  The likely focus for the Legislature will be on business property taxes.  Minnesota’s commercial property taxes are among the highest in the country, as businesses are required to pay the state property tax levy in addition to their local property taxes.  The state levy is typically a large line item on a business’s property tax bill, adding upwards of 50 percent on top of the local tax bill.  High property taxes affect the bottom line of location-based businesses and make it more difficult for businesses to invest in property.

Any business property tax cuts will come as a result of the Legislature passing a tax bill.  Interestingly, the Minnesota Legislature made great strides towards hashing out an omnibus tax bill towards the end of the 2015 Session.  While the bill never came to fruition, a House-Senate Tax Conference Committee spent last spring discussing many proposals and provisions dealing with business property taxes.  This Committee is likely to be reappointed and will head into the 2016 Session with a jump start on the tax bill.  There have been talks of reducing business property taxes and targeting the state levy for years, but the Legislature has not had the $1.2 billion budget surplus that it has now.  As a result, 2016 is shaping up to be a logical year to address the issue.

To be clear, reaching a compromise on the omnibus tax bill will not come without its challenges.  Governor Dayton will likely withhold support of the tax bill unless legislators support his agenda to expand preschool funding.  There is also contention surrounding transportation funding, so reaching an agreement on the tax bill is sure to involve extensive bargaining.  In any event, there seems to be a bipartisan understanding that Minnesota’s current taxes are too high in certain areas, with particular attention being placed on business property taxes.  By focusing on improving the state’s business tax climate, legislators can make Minnesota businesses more competitive and boost their economic vitality.

Bonding Bill

In addition to the omnibus tax bill, the 2016 Session will focus on putting together a bonding bill to finance public works projects all around the state.  The bonding bill is of significance to business all across the state, specifically the construction and tourism industries.  To be eligible for this form of state funding, a project must be publically owned, be of state or regional significance, and be a capital project.  The state funds these public works projects by selling general obligation bonds on the bond market and paying the debt service on the bonds over time.

Both the Senate and House Capital Investment Committees have been extensively touring the state to observe projects requesting state funding.  These bonding tours give Committee members a chance to see projects up close and ask questions of stakeholders and community leaders as they decide which projects are most deserving of state funding. The projects seeking funding are a diverse list, both geographically and in which industries they will benefit.  They include construction projects, environmental cleanup initiatives, upgrades to publicly owned buildings, and improvements to infrastructure throughout the state.

There have been many billions of dollars of requests submitted to MMB from every corner of the state.  It will be the work of the House and Senate Capital Investment Committees and Governor Dayton to assemble bonding packages that they believe will help move the state forward.  While the House, Senate and Governor will each assemble their own bonding packages initially, they will ultimately agree on one overarching bonding bill, likely to be in the $800 million to $1.5 billion range.  The bonding bill will benefit the communities that receive funding, and will also act as a shot in the arm for the construction and tourism industries across the state.

Governor Dayton will present his bonding proposal to the Legislature this month, while the House and Senate Capital Investment committees will assemble their respective packages through the committee process beginning March 8th.  Business leaders will want to follow the process and support projects that can positively impact their businesses.

In summary, it will be interesting to see how the Minnesota Legislature handles the budget surplus in 2016.  The scope, size, and nature of the potential tax and bonding bills will be hot items of discussion during the 2016 Session as the bills are negotiated and bounced through the Legislature.  The bottom line is that Minnesota businesses could stand to benefit significantly depending on the outcome of these bills.

*** DISCLAIMER:  This article should not be deemed legal advice. You should always consult with an attorney about your specific circumstances and legal rights and obligations. ***

This article was co-authored by Samuel Richie and Aaron Kolquist, both associate attorneys with Fryberger, Buchanan, Smith & Frederick, P.A.