Session 2023: Representing Minnesota Cities at the Capitol

By Gary Carlson

The 93rd Session of the Minnesota Legislature will convene Jan. 3, 2023, with 61 members who did not serve in either the House or the Senate this past biennium, nine members who moved from the House to the Senate, one member who moved from the Senate to the House, and all members representing districts that were adjusted in the 2022 redistricting plan.

With the large number of retirements after the last legislative session and the number of new faces that will be sworn in on Jan. 3, the Senate will have new leadership from the DFL Party, which gained a one-seat majority (34-33). The DFL Caucus elected seventh-term Sen. Kari Dziedzic (DFL-Minneapolis) as its majority leader, with sixth-term Sen. Bobby Joe Champion (DFL-Minneapolis) serving as Senate president. The Senate Republicans will be led by Mark Johnson (R-East Grand Forks), who will be entering his fourth term.

In the House, Rep. Melissa Hortman (DFL-Brooklyn Park), entering her 10th term, is expected as of this writing to be elected to retain her role as Speaker of the House; Rep. Jamie Long (DFL-Minneapolis), entering his third term, was officially elected as majority leader. The House Republicans will be led by third-term Rep. Lisa Demuth (R-Cold Spring). The House DFL will enter the session with a 70-64 majority, the same split as after the 2020 general election.

In mid-November, the House and Senate leadership announced new committee structures and committee chairs. The Senate committee structure for the 2023- 24 biennium will include 20 committees, compared to 28 in the previous biennium. In the House, the committee structure includes 28 committees compared to 31 in the previous biennium.

State budget

The Legislature’s main responsibility in 2023 will be to craft a state budget for the upcoming biennium, which will begin July 1, 2023, and end June 30, 2025. The House and Senate state budget recommendations will be coordinated by the Senate Finance Committee, which will be chaired by Sen. John Marty (DFL-Roseville), who is currently the longest-serving member of the Senate in his 12th term, and the House Ways and Means Committee, which will be chaired by Rep. Liz Olson (DFL-Duluth), who is in her fourth term.

Last year, the Legislature did not reach an agreement on a number of supplemental budget adjustments and a package of tax reductions for the remainder of the 2022-23 biennium. As a result, the state ended the session with a projected $7 billion general fund surplus. Since then, monthly state revenue collections have exceeded projections by more than $3 billion. That positive, short-term news for the current biennium has been tempered by recent economic developments that suggest longer-term uncertainty for the state budget.

Unfinished city business

When the 2022 session ended, many important city initiatives were left unresolved. Many of these policy issues may re-emerge as legislative priorities in 2023. However, with nearly one-third new members, the focus could move in different directions.

THC/Adult-use cannabis

The 2022 law change that legalized various edible THC products will almost certainly be revisited to address policy issues not fully addressed in the legislation, such as product quality control, and sales and possession control and enforcement. With many cities adopting local licensing regulations or temporary moratoria and others waiting on state direction, the legislative discussions will likely include a local focus. Some legislators are floating the idea of full adult-use legalization of cannabis products.

Local government aid (LGA)

In 2022, House and Senate leaders discussed an update to the nearly 10-year-old LGA formula proposed by League of Minnesota Cities, the Coalition of Greater Minnesota Cities, Metro Cities, and the Minnesota Association of Small Cities, which was designed to reflect fiscal and demographic data on all cities. Along with the refresh of the formula, legislative leaders discussed increasing the appropriation for the formula, which in 2021 was restored to the 2002 funding level but now remains frozen at that level. The Legislature failed to enact a tax bill in 2022 and, as a result, the recommendation of the city organizations did not become law. Based on the availability of new fiscal and demographic data and the age of the existing formula, legislators will certainly be debating a formula update.

Sales tax exemption on construction materials

Although a general sales tax exemption was extended to most city and other local government purchases in 2013, purchases of construction materials for local roads, buildings, and other local projects have remained subject to the sales tax if those purchases are initially made by a contractor on behalf of the local unit of government. In 2022, the Department of Revenue estimated that the sales tax on these purchases was increasing local project costs by more than $70 million per year. A bipartisan group of legislators has supported a change in the sales tax statutes that would allow the local unit of government to receive a refund of sales taxes paid on construction materials.

Local sales taxes

In 2022, 14 cities proposed local sales taxes to finance capital projects of regional significance, such as libraries, ice arenas, park improvements, and civic centers. Although the House and Senate Tax Conference Committee had agreed to versions of each of those proposals, the failure of the Legislature to pass a tax bill doomed those local sales tax efforts. For the upcoming session, all cities seeking local sales taxes for capital projects, including those who sought authority last year, will have to submit details of their proposals to the House and Senate Tax Committees by Jan. 31 in order to be considered in 2023.

Capital budget

During the 2022 session, the governor offered his capital budget recommendations to the Legislature. However, the capital investment committees in the House and Senate never unveiled their versions of omnibus bills. Although the 2023 session will focus on the state’s operating budget, the backlog of proposed state and local projects will almost certainly result in a continued debate on a capital projects bill, also known as the “bonding bill.” With recent increases in interest rates and other inflationary pressures on construction projects, the Legislature will likely adjust the overall size of a bill or scale the scope and number of projects. Rep. Fue Lee (DFL-Minneapolis) and Sen. Sandy Pappas (DFL-St. Paul) will chair the respective capital investment committees.

Infrastructure Investment and Jobs Act (IIJA) match

With the passage by Congress of the IIJA, which will provide states and local governments resources for a wide array of infrastructure projects, the Legislature will need to appropriate matching funds to unlock federal resources. Minnesota is expected to receive $7.4 billion in funding authorized by the IIJA in a combination of ongoing and new federal funding. However, 84% of that funding requires the non-federal matching funds for the state and sub-applicants, including cities, to access the federal funds. With approximately 380 new and existing funding opportunities for infrastructure, the Legislature will be pressured to ensure the state is able to access historic federal resources for infrastructure. Committees with jurisdiction over infrastructure-related priorities, including a new House Sustainable Infrastructure Policy Committee chaired by Rep. Erin Koegel (DFL-Spring Lake Park), will be interested in the utilization of federal funds to address state infrastructure priorities.

Have Questions?

If you have questions about the legislative session or the League’s legislative priorities, contact a member of the LMC Intergovernmental Relations (IGR) team. Find staff contact information at lmc.org/igr-staff.