Same Stalemate, Different Venue

This year, Minnesota is not waiting for the 3rd week of May to engage in some high-stakes legislative drama.  With the April 30 tax increase imminent, the House passed a bill Monday to fully replenish the state’s unemployment insurance trust fund -- with a couple of amendments guaranteed to make the rest of this week interesting.

The bill’s Trust Fund provisions would eliminate any UI tax increases and special assessments of Minnesota employers by paying off all federal debt and interest and restoring reserves.  The $2.7 billion price tag would be paid for by using all of the remaining $2.3 billion of ARPA funds ($1.15 billion currently unappropriated and another $1.15 billion appropriated last year for General Fund purposes in fiscal years 23-25) plus an additional $408 million of surplus.  Because many employers have likely already made their first quarter UI tax payments, the bill also includes a provision to refund any overpayments. 

That refund provision alone is rather interesting since back in February when legislators received background information on the UI Trust Fund situation, DEED representatives were adamant about the fact that there was no remedy analogous to an amended return on income taxes in order to get any higher UI taxes paid refunded.  In fact, DEED representatives testified such an effort would be “unparalleled” requiring “huge amount of backwards reconciliation” be “extremely complex and administratively exceptionally difficult” creating “major problems for business” and requiring an “unprecedented agency effort.”   At first glance it’s not clear if 1) DEED was simply trying to motivate prompt legislative action; 2) DEED has realized upon closer study it’s not as problematic as originally anticipated; or 3) it actually is as obnoxious as expected but agency officials are resigned to the realities that lawmakers don’t care about such administrative problems.  On closer inspection the bill increases the appropriation needed to administer a Trust Fund fix by 160% or an additional $7.2 million indicating the answer lies behind door number 3.  Such is the toll taxpayers must pay to accommodate issue-leveraging political strategies and exploits.   

While there is now the basis for agreement on the Trust Fund specifics, the House tacked on two amendments which makes whatever may come out of the looming conference committee discussion anything but a sure thing.  The first is $1 billion of frontline worker pay, which House and Senate Republicans have long resisted.   The second expands unemployment insurance benefits to part time school employees like bus drivers and food service workers.  The General Fund cost of this provision is a one-time $162 million appropriation to set up a state special revenue account for districts.   However, questions exist regarding the amount of unemployment benefit uptake among these workers going forward, how long this appropriation will last, and what happens then.  Would the state commit to an ongoing replenishment of that fund or will school districts need to use their unemployment levy authority?  

The result of all this is essentially now the same stalemate in a different venue.   It might be politically risky (and embarrassing) for the House to eventually just adopt the Senate’s “clean” UI Trust Fund fix, but at the same time it’s also risky to expose themselves to the wrath of the small business community.   Meanwhile the question arises if there are any modifications to the House’s amendments that the Senate would be willing to accommodate like reducing the generosity or tightening up eligibility on frontline worker pay.   For example, the eligibility threshold for the $1,500 payments to individuals employed in an occupation with direct COVID care responsibilities is $350,000 for a married filing joint return and $175,000 for all other filers (for all other individuals its $185,000 for MFJ filers and $85,000 for all other filers.)   DFL members have frequently criticized House Republicans for providing business tax relief to those who don’t need it, yet the same charge could be directed at DFL members regarding the gratuity in their frontline payment design.  Likewise, adjustments to the eligibility criteria regarding time employed in the frontline worker sector (120 hours over a period of 470 days) might present an issue for further consideration.

When the session began, we called this quid pro quo issue the canary in the legislative coal mine.  The next few days will likely go a long way in telling us how much trouble lies ahead for the rest of the session.