Minnesota lawmakers fail to prevent business tax hike, squabble over worker bonuses

ST. PAUL, Minn. (FOX 9) - If you enjoy watching inaction, squabbling, and blown deadlines, guided tours of the Minnesota State Capitol are available again.

The divided Minnesota Legislature is nearing the midway point of its 2022 session with little to show. Stalled talks over two early priorities - a $2.7 billion break for businesses facing tax increases, and bonuses for workers on the frontlines of the COVID-19 pandemic - have inspired little optimism about reaching deals on the state's $9.3 billion projected budget surplus.

A Tuesday afternoon negotiating session between Gov. Tim Walz and top lawmakers quickly broke up, and frustrations bubbled to the surface. Lawmakers have not agreed to refill the state's unemployment benefits fund, meaning businesses will see an average 30 percent tax increase on their quarterly payments due April 30.

House Speaker Melissa Hortman left the meeting after 10 minutes, accusing Republicans who control the Senate of going back on last year's $250 million deal for worker bonuses. The Democratic-led House is now seeking $1 billion to provide an estimated 667,000 workers in several industries with a $1,500 check.

"The Republican Senate wants to act like there’s some emergency with regard to unemployment insurance and meanwhile just completely ignore the frontline workers that we made a commitment to," said Hortman, DFL-Brooklyn Park, as she held up news reports of last summer's $250 million deal.

The Senate's top Republican said the $250 million remains on the table, but not until later in session. Republicans prefer to negotiate it along with their top priority: cutting the state's lowest income tax rate - which all Minnesota tax filers pay on at least a portion of their income - nearly in half.

"Our proposal we like better," said Senate Majority Leader Jeremy Miller, R-Winona. "It’s difficult for some politicians at the Capitol to pick some workers and not others." 

Unemployment insurance fund

Walz seems caught in the middle. He once proposed to have unemployment insurance and worker bonuses move separately through the Legislature. But now, the first-term DFL governor said both issues need to move together.

"The only bad outcome in this deal is not doing a deal," Walz told reporters outside his office after the failed negotiation session. "We’re not talking about cutting millions from education. We’re not talking about raising massive taxes. We can avoid all of those things by coming to a compromise."

Walz and his economic development officials have insisted that Tuesday is the deadline to avoid a tax increase on businesses. Minnesota borrowed money from the federal government to pay unemployment benefits during the pandemic recession. State law requires businesses to pay higher taxes to reimburse the federal government and refill the unemployment fund unless lawmakers act.

Walz said he had directed the state Economic Development department to research how to refund tax overpayments if the Legislature ultimately reaches a deal. But the process of unwinding the overpayments will not be easy and will likely take months, a spokeswoman for the agency said Tuesday.

The Senate passed a $2.7 billion unemployment insurance bill in February.

"The only people that are holding this up are House Democrats," Miller said.

But Hortman said Republicans have refused to negotiate.

"On planet Republican where (Miller) lives, his position is, 'We passed that $2.7 billion. Governor, we’re done with that,'" Hortman said. "I just have a little message for Sen. Miller. Here on planet Earth, a bill has to pass the House and Senate before it goes to the governor. So he's not done with anything."