The Minnesota legislature — the only divided state government in the country — wrapped up its special session on May 25 after weeks of negotiations to fund the government.
The 2019 regular session convened in January with promises of bipartisan cooperation and high expecta- tions. First-term Governor and former U.S. Congressman Tim Walz entered office after garnering one of the high- est vote totals for governor in the history of Minnesota. Hailing from Mankato, Walz wooed voters with a plat- form of building “One Minnesota” and breaking down the state politics of place. In the Legislature, Democrats took control of the House by flipping several suburban seats resulting in a 75-59 majority (up from a previous Republican majority of 72-62).
The Senate did not face elections in 2018, maintaining a razor-thin Republican majority of 34-33. That majority expanded to 35-32 in February when Sen. Tony Lourey (D-Kerrick) was appointed to run the Department of Human Services. Republicans picked up his seat in a special election.
Speaker of the House Melissa Hortman (D-Brooklyn Park) and Senate Majority Leader Paul Gazelka
(R-Nisswa) were elected to lead their respective majority caucuses, while Senate Minority Leader Tom Bakk (D-Cook) and House Minority Leader Kurt Daudt (R-Crown) were elected to lead the minority caucuses. Prior to the end of session, these leaders hit the speak- ing circuit and made pledges to work cooperatively and focus on issues where there might be agreement.
After days of closed-door negotiations, Gov. Walz, Speaker Hortman and Majority Leader Gazelka announced a budget deal on Sunday evening, May 19, just before constitutional adjournment. Gov. Walz praised Republican Majority Leader Gazelka for coming forward with the rare trait of “listening.” He also credited Speaker Hortman for convincing leaders to not back away from negotiations. Legislative leaders characterized the deal as a compromise from which no one got everything they wanted. Speaking for his caucus, Majority Leader Gazelka called the deal “a draw.”
After about a week of special session work, Gov. Walz signed all budget bills into law. Budget provisions will be effective July 1, 2019, and many policy provisions will be effective on Aug. 1, 2019.
Through our partnership with Goff Public — a bipartisan, government-relations firm staffed by former legislative staff and political insiders — ICBM took a multifaceted approach to advocacy during the 2019 session.
Our starting place for the session was our legislative priorities, which were determined through the leadership of the ICBM legislative committee and board of directors.
Our community bank members wanted us to:
Address Tax Conformity
Minnesota’s tax code was unaligned with the federal tax code, causing headaches for individuals and businesses. We supported conforming our state’s code with federal changes, especially regarding federal estate tax exclusion amounts. We also supported repealing the estate tax.
Level the Playing Field on Regulatory Funding
ICBM member banks pay exam fees and annual assessments that other regulated industries do not pay. We supported increased transparency and efforts to level this playing field to ensure that other industries are paying their fair share.
Improve Protections for Vulnerable Consumers
We supported efforts to combat elder financial abuse and expanded financial literacy for seniors, young adults, and families.
With a new commerce commissioner, Steve Kelley, and 37 first-year representatives in the House, we also carried out an extensive ground game to educate lawmakers on community banking, and to create inroads with
Minnesota Department of Commerce (MDOC). This time-intensive and necessary work underpinned our ability to stop bills harmful to our members. We detail our defensive efforts in the section titled “Playing Defense.”
ICBM also responded to multiple requests for input and/or testimony from lawmakers and the MDOC. Jim Amundson, ICBM President and CEO, was able to contribute thoughtful industry insight to lawmakers via testimony on two occasions during session.
On January 15, we testified before the Senate Agriculture, Rural Development, and Housing Policy Committee about Minnesota community banks’ investment in rural areas and support for the ag economy. We were able to give lawmakers input at a time when they were considering ways to help farmers. They needed to know all that community banks do for rural Minnesota.
On January 29, we testified before the House Commerce Committee on HF 319, a bill which proposes to create a loan guarantee program for furloughed federal employees. We were able to share community banker insights on the proposed program to help maximize the effectiveness and participation from community banks.
We also were at the table with Department of Commerce staff on numerous issues ranging from unclaimed property, CECL, marijuana and hemp banking, examiner training, Commerce’s workforce planning, and other relevant topics to our members.
Strengthening financial protections for seniors is a priority for our community bank members.
From conversations with the Department of Commerce, we understood that exist- ing broker-dealer statutes increased senior protections and provided more regulatory clarity. ICBM took the lead to draft lan- guage to provide similar immunity for com- munity banks. As the session progressed, we learned of another bill that contained immunity language for community banks that report suspected elder financial
abuse in good faith. ICBM became actively
involved in supporting this legislation and assisted in securing a House author for SF 2466/HF 2475 (Housley/Schultz).
The Senate Committee on Commerce and Consumer Protection Finance and Policy heard SF 2466 and laid it over for possible inclusion in its omnibus bill. The bill, how- ever, did not move out of that committee. While we looked for alternate bills to which we could attach the language, we were not successful in that effort.
Improving community banks’ ability to safely report suspected fraud will help stem a crime that affects communities across the state. We are eager to push this important legislation forward next year.
While ICBM obviously wasn’t alone in supporting efforts to bring Minnesota into conformity with the Tax Cuts and Jobs Act of 2017, we did communicate our members’ desire for conformity in meetings with lawmakers. To that extent, we were a part of what became a mostly favorable conclusion.
Gov. Walz signed a bill on May 31 to put the state in almost full conformity with changes made in the federal Tax Cuts and Jobs Act of 2017. The bill will change the starting point of Minnesota’s tax system to federally adjusted gross income, away from federal taxable income. The bill will double the standard deduction and reduce the second-tier income tax rate (individuals who make $26,521 to $154,020) from
7.05 percent to 6.8 percent. It also contains a reduction in the statewide commercial- industrial property tax levy by $77 million in fiscal years 2020 and 2021.
The bill also included no gas tax, no tab fee increases, nor a sales tax increase for transit. Additionally, the provider tax was reinstated at a rate of 1.8 percent, ongoing.
Community banks in Minnesota secured a small victory on leveling the playing field for regulatory funding.
As many of our members know, examination and assessment fees are increasing. Yet, other regulated industries do not pay to fund regulation to the degree that state-charted banks do. A bill was introduced this session to redirect non-depository fees to an MDOC special revenue fund from the general fund. The bill made it to the end of session and was included in the House Jobs Omnibus bill.
While the bill was removed during special session, the legislature did redirect some fees to the special revenue fund that helps pay for state regulation. The result was a small increase of $110,000 in the special revenue fund.
In our conversations with MDOC representatives, ICBM supported the bill because it would lay the groundwork for other industries to pay their fair share. While the language passed into law is a positive step, there is still more to do. At the very least, we are hearing a change in tone from the MDOC. For the first time in our experience, Commerce staff is saying that it supports a level playing field in interactions with Gov. Walz.
Credit Union Conversion & Merger
HF 1578/SF 1703 (Kotyza-Witthuhn/Koran) eliminated the super-majority requirements for the conversion, merger or consolidation of credit unions. Our team spoke with MNCUN and did not see any concerns for ICBM members. The bill was signed into law on May 9, 2019.
Elder Abuse Protections
HF 90 (Schultz) was signed into law by Gov. Walz on May 22, 2019. The bill will provide for licensure of assisted living facilities, establish resident rights and consumer protections for residents of assisted living facilities, nursing facilities and housing with services establishments. The bill also makes conforming changes to other statutes related to the licensure of assisted living facilities. The passage of this land- mark legislation demonstrates that protecting seniors from any sort of abuse is still a salient issue at the legislature.
Farmer Mental Health
With the Governor’s signing of Special Session SF 1 (Westrom), $100,000 will be appropriated for community outreach to farmers and to rural mental health services. Another $500,000 will be appropriated to the Minnesota State Agricultural Center of Excellence for statewide mental health counseling support for farm families and business operators. In committee discussion on these proposals, farmer advocates often noted the role of community banks in identifying mental health issues over the course of the lending process. They also noted community banks’ role in assisting families who tragically deal with farm assets following a loved one’s suicide.
PACE Loan Changes
Minor changes were made to the Property Assessed Clean Energy, or PACE pro- gram, in Special Session HF 2 (Mahoney). New construction will now be incorporated into the definition of “cost-effective energy improvements.”
College Savings Accounts
Special Session HF 1 (Davnie), which was signed into law by Gov. Walz, appropriates
$500,000 in the 2020-2021 biennium for a grant to the city of Saint Paul to create a college savings account program for every child born in the city starting in fiscal year 2020. Saint Paul is required to administer the program with a qualified financial institution. The city would be the owner of the account, but the beneficiary would be the child.
ICBM successfully defended against the following bills that would have affected our members negatively:
In late February, Goff Public reached out to the Commerce Department regarding its proposed modifications to the state’s unclaimed property law. The MDOC’s interests in these changes remain unclear, but the department has proposed unclaimed property law changes several times in the last few legislative sessions.
The MDOC amended its original bill, HF 2538 (Mahoney), the House Commerce Committee and stakeholder groups immediately expressed concerns about the language, most notably that it mirrored a problematic Illinois law and deviated substantially from language in the Revised Uniform Unclaimed Property Act (RUUPA).
To address stakeholder concerns, the MDOC convened a meeting with ICBM and other stakeholders — the Minnesota Bankers Association, Minnesota Credit Union Network, the Uniform Law
Commission, Minnesota Insurance, and the Financial Services Council. Jim Amundson attended the meeting with Goff Public and offered constructive input on how the bill’s definition of unclaimed property could have negative consequences for individuals, families and community banks. The MDOC’s initial proposal, for example, did not define automatic debits and/or credits as the type of activity that prevents an account from becoming unclaimed.
HF 2538 was rolled into the omnibus jobs and economic development bill, HF 2208 (Mahoney), which still contained language that all stakeholders opposed when it left the House for conference committee.
Senate Republicans did not warmly welcome the Department’s unclaimed property bill and did not include the proposal as part of its omnibus bill that passed off the Senate floor. We worked with Sen. Eric Pratt (R-Prior Lake) and Senate Commerce Chair Gary Dahms
(R-Redwood Falls) and urged them not to accept the proposed changes. Although the MDOC had conceded on many provisions, we communicated that the language needed additional work and that it was ICBM’s preference to continue work on this issue during the interim period between the 2019 and 2020 sessions.
ICBM also was successful in limiting the changes to unclaimed property statutes made in the final omnibus jobs and economic development package, HF 2 (Mahoney). The only unclaimed property changes made in the bill relate to compliance with the U.S. Supreme Court Hall decision:
A New, State-Funded Credit Union
SF 2371/HF 2284 (Champion/Noor) would have appropriated $500,000 in both fiscal years 2020 and 2021 for a grant to a non- profit to create a federally chartered or state-chartered credit union that would service low-income individuals. We communicated our strong opposition to the bill’s author, Rep. Mohamud Noor (D-Minneapolis).
Fortunately, the bill never received a hearing.
Student Loan Ombudsperson
SF 1484/HF 1424 (Franzen/Stephenson) would have established a student loan ombudsperson within the Department of Commerce. It would have required student loan servicers to be licensed (a later amendment exempted financial institutions).
While the bill received a few hearings in the House and was incorporated into the House’s Jobs and Economic Development omnibus bill, it received no action in the Senate.
Furloughed Federal Employee Loan Program
HF 319/SF 588 (Stephenson/Little) would have provided a loan guarantee program for furloughed federal employees. This bill stemmed from the federal government shutdown earlier this year.
After receiving a hearing in the House Commerce Committee — at which we communicated its shortcoming for community banks — the bill lost steam. It did not progress after the federal shutdown ended.
Our team met with Rep. Zack Stephenson (D-Coon Rapids) and noted concerns with the bill’s language, particularly about fair lending implications as it related to the FDIC. Jim Amundson testified on this bill and highlighted ICBM’s concerns. He also offered to assist Rep. Stephenson in improving the bill if it moved further through the legislative process.
As we look ahead to the 2020 legislative session, ICBM will continue to build relationships with legislators and staff on issues that are important to policy affecting community banks in Minnesota. While there are no elections this fall at the state level, we encourage community banks to invite legislators to their banks
or to meet them for a cup of coffee to discuss banking issues while they are out of session.
ICBM already has begun preparations for a successful session in 2020. We’re preparing to work on the following issues and policy changes:
With Commissioner Kelley and lawmakers indicating their support for new measures to reduce elder financial fraud, we plan to continue to push for legislation that provides community banks the same “immunity” as investment advisers who report suspected financial elder abuse in good faith.
Considerable work remains before other industries fund state regulation as much as state-chartered banks do. We will continue to build support at the MDOC and with lawmakers on this important issue.
While the state now conforms to federal tax law in most areas, Minnesota’s estate tax remains high. We will advocate for it also to conform to new federal tax laws.
The MDOC remains interested in changes to unclaimed property law modeled after Illinois law. We plan to advocate for a law modeled after RUUPA, which contains best practices implemented in other states. While this issue affects our members, it also affects
Minnesotans generally, often in very impactful ways. No one wants their “claimed” property — be it deposit accounts or loan security interests — to end up at the MDOC due to a poorly crafted state policy.
Community banks and bankers will be more successful if we all commit to take action in support of industry advocacy. Here’s what you can do:
• Join the legislative committee.
• Contribute to the PAC.
• Make an impression on your lawmakers: Invite them to an event, coffee or lunch — or just to visit your bank.
• Plan to attend Day at the Capitol.
• Communicate pain points caused by state law.
Contact Jim Amundson at 651-789-3985 or email him at firstname.lastname@example.org to complete any of these actions.
ICBM exists to provide community banks with the resources and advocacy they need to remain independent, grow their banks, and benefit their communities. We are the only association focused solely on representing the state’s community banks.