The 2020 Minnesota legislative session started on February 11 with a comfortable budget surplus and optimism for a capital investment bill and policy reforms. No one could have imagined that by mid-May the State of Minnesota would be facing a $2 billion-plus budget shortfall and record-high unemployment numbers, let alone a public health pandemic.
The session formally ended by 11:59 p.m. on Sunday, May 18, with state leaders leaving many issues unresolved. There are bipartisan expectations that the most urgent matters will be settled through negotiations over the next few weeks, and a special legislative session called to pass whatever compromises are agreed upon.
But a crisis atmosphere, partisan posturing, sincere differences of opinion and the specter of a statewide election in November – not to mention the added awkwardness of negotiating by videoconference – all have contributed to the difficulty of finding common ground in the only divided legislature currently in America.
Election-year session becomes the coronavirus session
At the outset of the session, both parties had ambitious legislative agendas to position themselves for the November elections, when control of both houses of the legislature are at stake. The House DFL majority prioritized paid family and medical leave, gun control legislation, climate change, and legalized cannabis. The Senate Republican majority was seeking tax relief, clean energy investments, and state agency reforms.
Then the COVID-19 pandemic descended on Minnesota. When Governor Tim Walz declared a peacetime emergency on March 13, everything changed. A series of governor executive orders and warnings by state health officials closed schools, curtailed a large swath of the state’s economy, and put society on a lockdown. The legislature – by design a traditional, slow-acting institution – had to adapt quickly to new urgencies and adjust the way it conducts its business.
Legislators quickly got to work and passed nearly $500 million in immediate relief for health care systems, public health infrastructure, childcare, and small businesses. Then legislators took a nearly two-week break for Capitol staff to overhaul long-held legislative processes and allow lawmakers to participate in hearings and floor sessions remotely. Minnesota’s legislative process looked incredibly different when the legislature reconvened on April 14 to resume its work. A closed Capitol meant committee meetings were conducted via Zoom and legislators could vote from their home districts. Of course, this drew criticism for lack of transparency and limited public involvement.
There was a brief honeymoon period filled with talk of bipartisan compromise, but this cooperative spirit soon faded.
As Governor Walz issued a series of nearly 50 executive orders amid the crisis, Republican legislators began to openly question the Governor’s judgment and the assumptions behind his decisions. Even a few DFLers voiced muted criticism on some specific orders. And, despite some attempts early in the session to promote transparency, hopes of a new way of doing business evaporated once COVID-19 gripped the Minnesota Legislature.
On May 5, Minnesota Management and Budget (MMB) issued a nearly unprecedented budget projection (not a full budget forecast) that suggested the state could face a near-$2-billion deficit during the current biennium, a swing of nearly $4 billion in the states short-term economic outlook. The Governor’s supplemental budget proposal, which had been released just as COVID-19 hit Minnesota, was immediately irrelevant.
This bleak economic news forced the legislature to pivot and reframe its outlook for the remainder of the session, and the legislative caucuses to return to their own partisan comfort zones. To the Republicans, Governor Walz’s declaration of a peacetime emergency and corresponding executive orders became the reason for the economic collapse and rising unemployment. His untethered exercise of executive powers, they argue, has allowed state agencies (not trusted by legislative Republicans) to act in unprecedented ways, waive certain deadlines and license requirements, etc. And the legislature could only stand idly by and allow this to happen. It became the mantra of legislative Republicans, particularly in the House minority, that negotiations on any legislation (bonding bill, tax bill, consideration of additional agency flexibility) must only be considered if the Governor’s executive powers were limited.
For their part, Democrats stood by the Governor’s side. Defending his actions in the name of public health and safety, they publicly asserted that there were checks and balances in the system. Democrats also leveraged pandemic-related discussions to highlight the inequities across that state that were exacerbated during this public health crisis.
Racing to Indecision
An underlying fact is that the legislature didn’t have to accomplish anything this session. It already passed a biennial state budget last year. Even-numbered years are generally reserved for policy changes and capital (bonding) projects (although in recent history, this tradition is less rigidly adhered to). Without a driving sense of urgency, many legislators concluded that sticking to partisan positions and not reaching a compromise was a permissible option.
During the final two weeks of the session, little negotiation “give” occurred, so the end of the legislative session was anticlimactic and accomplished little. Omnibus policy bills, many proposed by the administration, were winnowed down to only relatively noncontroversial provisions. House and Senate majorities released competing tax relief packages with little time remaining to reach consensus. And partisan bonding bills were produced (largely behind closed doors) with little time for serious vetting or negotiations.
In the last 72 hours of the session, legislative leaders joined Governor Walz to see if they could hammer out a deal. But, by that time, it was clear that positions had hardened, and it was too late for much movement at the negotiating table. Governor Walz would likely call the legislature back for a special session to coincide with the expiration of the current peacetime emergency (June 12), thereby allowing the legislature the opportunity to veto that extension. That reality meant that the legislature no longer had to finish its business by the constitutionally mandated May 18 adjournment date and took most of the steam out of the remaining negotiations last weekend. Effectively, everyone agreed to play in the “extra innings” of a special session before starting their reelection campaigns.
The inconclusive ending to the legislative session left many items in limbo until the 2021 session. Some may be worked out with more time. Others are fiscal matters that may be solved by using federal money appropriated to the state as part of federal COVID-19 relief packages in the special session.
This legislative session’s story isn’t over. All indications point to the likelihood that Governor Walz will extend his peacetime emergency declaration and, as a result, call the legislature into a special session. Three scenarios are possible:
Much like dealing with the pandemic itself, there are many unknowns left for the current legislature. What we do know for certain is that the work of the 2020 Legislature is far from over.
In a regular legislative session where very little ultimately passed, ICBM had a successful session. The most exciting legislative accomplishment was the passage of SF2466 (Housley), an initiative supported by ICBM that provides financial institutions stronger immunity protections when they report or take certain actions to combat suspected financial abuse of vulnerable adults. The bill was signed into law on May 16, 2020, by Governor Walz.
SF2466 was modeled on 2018 legislation that offered immunity protections for broker-dealers that encounter instances of suspected financial abuse. This bill extends immunity from civil or criminal liability to financial services providers that report instances to the Minnesota Adult Abuse Reporting Center (MAARC), cooperate in an investigation of financial exploitation of an eligible adult, or testify about alleged financial exploitation in a judicial or administrative proceeding. If informed by the Department of Commerce, law enforcement agency, or prosecuting attorney for a suspected case of financial exploitation, the financial institution would be required to delay or place a hold on suspected transactions involving the victim. The new law will allow financial institutions to place a hold on or delay transactions they suspect are related to financial exploitation and allows affected adults to appeal to the Commissioner of Commerce for the termination of the action.
After the bill failed to generate traction last year, our team wasted no time in working with the bill authors and committee leadership to encourage them to hear the bill in 2020. Our efforts were critical in spurring House action. Our team prepared an amendment to align both the House and Senate versions of the bill, coordinated testimony for ICBM President and CEO Jim Amundson to testify (virtually) in the House Commerce Committee, and drafted and submitted ICBM letters of support for the legislation.
ICBM was also successful in defeating legislation that may have been harmful to financial institutions. After participation in numerous working group meetings during the summer and fall of 2019, the Department of Commerce was unable to find stakeholder agreement to change the state’s unclaimed property laws. ICBM was a valuable resource in these discussions, which we anticipate could resume this summer.
We also made some strategic progress on the issue of credit union acquisition of banks. Our conversations with legislative thought leaders made it clear that moving a bill would be extremely difficult, but we still felt it important to send a statement to lawmakers and stakeholders that this is an issue of concern for community bankers. As such, HF4626/SF4602 (Vogel/Draheim) was introduced late in the regular session. We anticipated this bill would not receive a committee hearing (which it did not) but it provides a platform for discussions with legislators in advance of the 2021 legislative session.
Financial institutions’ issues were discussed at great length during this legislative session. In addition to the ICBM priority related to elder financial abuse mentioned above, the following bills were signed into law this year:
Loan guarantee program
HF4531 (Winkler), a COVID-19 emergency relief package, contained $30 million for the small business emergency loan account and $10 million for the small business loan guarantee program. The loan guarantee would equal 80% of the loan amount not to exceed $200,000. As this bill came together, the Department of Commerce solicited input from ICBM regarding the formation of this program.
Extension of farmer-lender mediation timelines
Farmer-lender mediation timelines were extended twice this legislative session. The first extension was part of HF4556 (Winkler), a COVID-19 relief package, which pushed out the period for mediation between a farmer and lender from 90 days to 150 days for mediations in progress or initiated between April 16, 2020, and July 31, 2020. The second was included in HF4599 (Lippert) which extended the mediation period to the later of 150 days or until December 1, 2020, for mediations that were in progress or initiated between April 16, 2020, and August 31, 2020.
ICBM initiated stakeholder conversations to explore the motivations behind this legislation, including with Minnesota Farmers Union and the University of Minnesota Extension. There was some discomfort expressed by some ICBM members, but the proposal generated significant bipartisan, bicameral support and would have been difficult to amend, as advocates noted the difficulties of farmers during this time and challenges to conducting mediations by phone or video.
United Banker’s Bank
SF3589 (Draheim) removes the restriction that 51% of United Banker’s Bank (UBB) ownership must be held by Minnesota banks. The UBB argued that this requirement was not found in any other state and put Minnesota community banks at a competitive disadvantage. The change becomes effective on August 1, 2020.
Money transmission timing
SF3800 (Koran) regulates the transmission of money. It will require a money transmitter to transmit money received within five business days unless otherwise specified and would allow the transmitter to place a hold on a transaction. This bill was brought forward on behalf of PayPal and will become effective on August 1, 2020.
Department of Commerce policy bill
SF4091 (Koran) includes technical language that cross-references the Commerce Commissioner’s authority under the Nationwide Multistate Licensing System and Registry. This bill was a clean-up proposal put forward by the Department of Commerce.
Uniform Transfer to Minors Act changes
SF3357 (Limmer) will update provisions of the Uniform Transfer to Minors Act (UTMA), specifically replacing the “prudent person” standard with the “prudent investor rule” and changes the termination age of all UTMA accounts to 21. This initiative was led by the Minnesota State Bar Association (MSBA), and ICBM was consulted prior to the bill’s introduction.
Agriculture supplemental spending
HF4490 (Poppe) appropriates $175,000 this fiscal year for grants to farmers to cover up to 50% of loan origination fees when they seek debt restructuring. This bill also appropriates an additional $40,000 for farmer mental health this fiscal year.
ICBM’s government relations team at Goff Public, in consort with ICBM President & CEO Jim Amundson, has followed these discussions at the Minnesota Legislature:
Emergency housing relief
Near the end of session, the House passed HF1507 (Stephenson) which contains many COVID-19 related relief measures, including several emergency housing provisions. The bill would have prohibited the imposition of late fees for late rent payments and termination or nonrenewal of rental agreements; prohibited the initiation of foreclosure proceedings; appropriated $100 million for family homeless prevention and assistance; and allowed a financial institution to open a transaction account, or allow signatory power over a transactional account, for a person who has previously issued dishonored checks or been convicted of a crime related to checks. Finally, the bill would require lenders of small consumer loans and short-term loans issued during a public health emergency to allow the loans to be paid back in equal amounts over a 12-month period.
While the Senate did not take up HF1507, differing emergency housing measures had been discussed and vetted by both bodies during the last few weeks of the session. Originally, it was thought that the House and Senate had reached “agreement” on a bill that fell apart and resulted in the introduction of two competing proposals, HF4541 (Hausman) in the House, and SF4495 (Westrom) in the Senate. The Senate language was more limited in scope and contained $30 million for emergency housing grants while the House proposal had $100 million. The Senate language also had a shorter moratorium on lease terminations and foreclosures. The House eventually incorporated language from the Hausman bill directly into HF1507 which contained a wider array of emergency COVID-19 relief measures.
During negotiations in the final weekend of session, the Senate revived its proposal and included controversial changes to local building code processes. There were backroom attempts to tag this proposal to the fate of a bonding bill, which was a strategy rejected by the Governor’s office. With leaders unable to disentangle controversial provisions from the underlying housing assistance measures, the legislation ultimately died.
We spoke with Rep. Jim Davnie (DFL-Minneapolis), who advocated for the dishonored check provisions in the bill. We communicated that ICBM could be supportive of the provision if immunity was granted for banks that keep the current risk mitigation measures in place. We relayed the same information to Senate Commerce Committee staff and the Department of Commerce.
Some version of a housing assistance bill is likely to be in play for the upcoming special session.
Reverse mortgage notification
HF3627/SF3818 (Kotyza-Witthuhn/Eichorn) would have required lenders and servicers of a reverse mortgage to notify borrowers they can add an additional person to receive communications regarding loan defaults. The bill would also require the loan servicer to send communications to the borrower’s independent loan counseling agency. Legal Aid solicited feedback from ICBM prior to the legislative session. The bill passed the House and Senate Commerce committees but did not advance for floor votes.
Fraudulent business filings
HF4042/SF4387 (Halverson/Koran) would have created a pre-filing remedy for the Minnesota Secretary of State’s office to root out bogus Uniform Criminal Code (UCC) filings intended to harass or defraud a debtor. The office currently has little power to reject fraudulent filings and noted those filings are fairly easy to spot. ICBM was consulted during the construction of this bill. After one hearing in the House Commerce Committee, the bill did not advance.
Mortgage financing for manufactured home park cooperatives
HF2967/SF3251 (Sauke/Johnson) would have allowed manufactured homes in a nonprofit or cooperative-owned manufactured home park to be valued as an improvement to real property, thereby making them eligible for traditional mortgage financing. This bill passed the Senate 67-0 and was transmitted to the House but was not taken up. Rep. Duane Sauke (DFL-Rochester) solicited ICBM feedback and our team attended relevant stakeholder meetings.
Additional funding for the financial institutions account
SF3432 (Pratt), which contains additional funding for the financial institutions account in the special revenue fund, failed to move forward this year. This bill did not have a House companion introduced.
STRATEGY GOING FORWARD
As legislative discussions relative to a special session proceed, our team will continue to keep a close eye on any proposals related to foreclosure moratoriums, extending farmer-lender mediation timelines, and other consumer relief measures that affect community banks that may arise due to a souring economy.
One issue that was cast aside this legislative session that may reappear in 2021 were major changes to unclaimed property laws. Now that our state has a projected budget deficit, a change to the guidelines on how property is escheated to the state could be a way to generate much-needed funds. We are uncertain at this time if the Department of Commerce will convene stakeholder meetings this summer to try and reach an agreement. Depending on how the dust settles after the November election, the department may try running their proposal through with little feedback from financial institutions. We will keep you updated on this topic.
A major election this fall will pose both opportunities and risks for ICBM. Several legislative retirements will give us the chance to talk with legislative candidates and returning lawmakers about your priorities and turn them into community bank advocates. We will want to be sure that we are focusing on building relationships that anticipate 2020 election outcomes and those legislators that will be in leadership positions come the 2021 legislative session.
From Surplus to Bust
Policymakers walked into the session with a $1.5 billion surplus that some envisioned using for supplemental investments while others had plans for tax relief. However, that surplus was quickly erased and turned into a projected $2.4 billion deficit in light of the pandemic. Minnesota cannot deficit spend so this budget problem must be addressed by June 30, 2021. The Legislature and Governor are not required to balance the budget against the recent budget projection and will have until early December (the next full economic forecast) to better understand how the pandemic is affecting the state’s economy.
While federal CARES Act aid and FEMA reimbursement funds should provide some relief for the state, there are other factors to consider. If the Legislature is not in session, the Governor must exhaust state budget reserves before considering more drastic unallotment powers, which would permit him to cut funding for existing programs.
Minnesota Management and Budget (MMB) Commissioner Myron Frans has voiced fears of draining the reserve right now to balance the budget due to uncertainty around how the pandemic will evolve later this year.