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Minnesota Update
2023 Legislative Session Begins
The legislative session is in full swing, and legislators are already busy hearing bills in their respective committees. While the first year of a biennium usually starts slow and most committees focus on overviews and educational hearings for new members, this year, a number of committees jumped straight into substantive hearings on important legislative proposals. Most notably, Speaker of the House Melissa Hortman (DFL-Brooklyn Park) has noted two legislative priorities that legislative Democrats intend to pass in the first month.
Federal Tax Conformity Moves Quickly
Introduced by the new chairs of the Senate and House Tax Committees—Sen. Ann Reset (DFL-New Hope) and Rep. Aisha Gomez (DFL-Minneapolis), respectively—the federal tax conformity bill has already been heard and moved out of three committees. As introduced, S.F. 25/H.F. 31 includes deductions for businesses, such as restaurants, entertainment venues and other small operations that received special grants or loans to help them through COVID-19 disruptions, as well as various corporate and individual income tax deductions, including some around student loans, charitable contributions or mortgage debt forgiveness. It is estimated that the proposal will cost the state $99.8 million in FY 2024-25.
According to the Minnesota Department of Revenue, the bill needs to be passed and signed into law by January 13, 2023, to avoid disruption or delay with state filing deadlines. Last week, the bill was heard and passed by the House Tax Committee, the House Ways & Means Committee, and the Senate Tax Committee. The bill has remained noncontroversial.
Earlier today, the House of Representatives passed H.F. 31 by a vote of 132-0. The bill was then sent to the Senate where it is expected to be acted on this later this afternoon. Once passed by both bodies, the bill will be sent to the governor’s desk for his signature.
Reproductive Rights Take Center Stage
The second high-profile proposal that appears set to move quickly would seek to codify individual rights related to abortion, pregnancy prevention, managing pregnancy loss, and improving maternal health and birth outcomes. Introduced by Sen. Jennifer McEwen (DFL-Duluth) and Rep. Carlie Kotyza-Witthuhn (DFL-Eden Prairie), S.F. 1/H.F. 1 seeks to codify rights recognized in the Minnesota Constitution under Doe v. Gomez following the U.S. Supreme Court’s recent decision to overturn Roe v. Wade. The bill was heard and passed out of the House Health Finance Committee last week on a party-line vote of 11-8 and is scheduled for multiple committee hearings in both the Senate and House later this week.
Important Dates to Remember:
- January 24, 2023: Governor Walz releases his proposed budget
- TBD, February 2023: Updated budget forecast from MMB
- May 22, 2023: Deadline to adjourn legislative session
Federal Update
The House will vote to adopt the rules of the 118th Congress today after a prolonged speaker election. Given the closely divided nature of the House, it could be a nail-biter. The resolution includes a change agreed to by newly elected Speaker Kevin McCarthy (R-CA) to secure the votes he needed to win the gavel. It would restore a longstanding rule on the procedure for ousting a sitting speaker. If adopted, it would allow one member to force a recall vote at any time. McCarthy's detractors said the concession was needed to ensure accountability. He was elected early Saturday on the 15th ballot. Members were then sworn in, bringing the whole number of the House to 434.
While the rules package itself has been made public, many of the key concessions trumpeted by the party's right-wing have not been released in any written form. Those include the agreement to write spending bills to the fiscal 2022 level and allowing for an open-ended amendment process for spending bills on the floor. McCarthy also agreed to appoint “three solid conservatives” to the Rules Committee.
Freshman members were sworn in early Saturday after spending the first days of the 118th Congress in limbo. The showdown between GOP leadership and holdouts to Kevin McCarthy's bid pushed pause on the start of congressional work. According to the traditional order of business, a speaker must be chosen before members are sworn in and the rules of the House adopted. That meant hiring staff, committee assignments, and bill drafting were on hold. But with McCarthy elected speaker and swearings-in done early Saturday, 40 Republicans and 35 Democrats' first year in Congress officially kicked off.
Spending Cuts Possible
The House’s new Republican leaders are poised to agree to reduce overall federal discretionary spending, but the ax appears more likely to fall on nondefense programs than on defense ones.
The appropriations cap is one of several elements of a tentative agreement between California Republican Kevin McCarthy and the group of lawmakers who had delayed his ascension to the speakership. Under the deal as described by lawmakers and staff, overall federal discretionary spending in fiscal 2024 could not exceed the roughly $1.57 trillion level enacted for fiscal 2022, which is about $130 billion, or 8 percent, less than the fiscal 2023 enacted level of $1.7 trillion.
Crucially, there are no individual caps on defense programs or nondefense programs in the agreement — just a ceiling on overall spending.
As a result, as long as bipartisan support for growing defense budgets continues among most congressional Republicans and a critical mass of Democrats, any cap on overall spending levels will probably exert more downward pressure on nondefense programs than on the Pentagon. Congressman Tom Cole of Oklahoma, a senior Republican appropriator and a longtime member of the Rules Committee, strongly hinted that defense spending would not be the biggest victim of a spending cap.
While the cap does not signify defense cuts, it may restrain military spending — especially among Democrats. They may be reticent to boost defense spending anywhere close to the 10 percent hike from fiscal 2022 to 2023 if such an increase would have to be paid for, under a finite overall budget, by cuts to nondefense programs. In short, if the cap on overall spending sticks, it will complicate and perhaps dampen the outlook for growing defense appropriations, but it does not necessarily doom them to a downturn.
Another reason the looming cap may be less than meets the eye for the national security community is that there is a small chance that pro-defense members of both parties in the House could vote to drop the cap when it comes time to pass a fiscal 2024 defense spending measure later this year. Yet the most important reason to doubt the impact of the cap is that the more defense-friendly Senate is sure to push back hard against any cuts in military spending when it comes time to write a final bicameral bill.
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