On December 21, 2020, Congress passed the Consolidated Appropriations Act, 2021, a year-end legislation package that includes a $1.4 trillion omnibus spending bill and a $900 billion COVID-19 relief bill. The bill is expected to be signed by the President later today.

This legislation provides substantial relief in light of the COVID-19 pandemic, including key provisions in support of affordable housing. Highlights include:

1. Fixing the 4% low-income housing tax credit applicable percentage at a minimum of 4%;
2. Providing $25 billion in direct emergency rental assistance; and
3. Extending the current eviction moratorium.

Low-Income Housing Tax Credit – 4% Floor

The proposal to establish a 4% minimum rate for low-income housing tax credits (“LIHTC”) was included in the year-end legislation after years of advocacy by LIHTC stakeholders. A minimum 4% LIHTC applicable percentage will make more affordable housing developments financially feasible. In recent months, the variable “4%” applicable percentage rate has fallen to historic lows, now at 3.09%, as a result of cuts to the federal borrowing rate in response to the pandemic. It is estimated that nearly 126,000 additional affordable rental homes will be created or preserved over the next decade with the enactment of a minimum 4% LIHTC rate. This is an incredible achievement for the affordable housing community, and will enable the creation of much-needed affordable housing in the years to come.

Whether or not a project will benefit from the new fixed 4% rate is based on (1) when a building is placed in service and (2) depending on the type of financing for the project, when the tax-exempt bonds for the project are issued or when the LIHTC allocation year is. As to bond-financed projects, the fixed 4% rate is effective for a project building that is placed in service after December 31, 2020, and at least a portion of which is financed by tax-exempt bonds issued after December 31, 2020.  As to projects that are not bond-financed, the fixed 4% rate is effective for an existing building that is placed in service after December 31, 2020, and receives an allocation from 2021 or a subsequent year LIHTC authority.

It is unclear whether drawdown, bond-financed projects that initially have one or more drawdowns on or before December 31, 2020, but then have one or more, additional drawdowns after December 31, 2020, are eligible to receive the fixed 4% rate. Further guidance from the IRS and/or Congress may be needed.

$25 Billion in Emergency Rental Assistance

The legislation also provides for $25 billion in rental assistance for states and localities through the Coronavirus Relief Fund – the first-ever emergency federal rental assistance program to be distributed by state and local governments. Under the legislation, each state would receive a minimum of $200 million to be used for emergency rental relief; $800 million is reserved for Native American housing entities. Households are eligible for assistance if the household income is below 80% of the area median income, and a member of the household has: qualified for unemployment benefits, lost part of their income or has experienced financial hardship because of COVID-19, or can show that they are at risk of losing their home. These families will be able to utilize this new rental assistance for past-due rent or future rent payments, as well as to pay utility and energy bills and prevent shutoffs.

Eviction Moratorium Extension

A one-month extension of the nationwide eviction moratorium is also included in the relief package, putting eviction protections in place through January 31, 2021. This extension provides essential and immediate protection for millions of renters on the verge of losing their homes in January; tenants in the U.S. owe an estimated $70 billion in back rent because of the pandemic. The moratorium does not relieve any obligation to pay rent, but provides temporary relief to families suffering financial uncertainty in the midst of the COVID-19 pandemic.

We will continue to monitor this and other legislation related to affordable housing, and will provide additional updates when guidance is announced. Please contact your Winthrop attorney if you have questions or would like to discuss the implications of this new legislation for your project.

A new coronavirus relief package, which includes a second round of Paycheck Protection Program (“PPP”) funds, appears to be on the horizon. Details are still being worked out on the Hill, but here are some key updates and takeaways of what business owners may expect:

1. New PPP Funds: As it stands as of December 18, 2020, the bipartisan proposal will include $288 billion in new funding for the PPP, and some companies will be eligible for a second PPP loan. Reports suggest that new PPP loans would capped at $2 million (compared to the $10 million cap in the initial PPP round) and that only companies with 300 or fewer employees would be eligible (down from the 500-employee limit in the initial PPP round). There are also discussions on restricting the maximum amount of funds that would be allotted for certain types of franchised or multi-unit companies, such as restaurant or hotel chains.
2. Targeted Approach for Small Business: Lawmakers are trying to take a more nuanced approach to the new round of funding, and are carving out funds specifically for the hardest-hit industries such as owner-operator restaurants, theaters, daycares, etc., as well as trying to funnel more relief to businesses with 10 or fewer employees.
3. Push to make PPP Expenses Deductible: Lobbyists and a bipartisan coalition are attempting to overturn IRS rulings that disallow deductions for expenses that the PPP program were designed to support. Under the proposed legislation, businesses would be able to obtain a tax deduction for operating expenses that were paid for using forgiven PPP loan funds.

Aside from the federal push for new funding, the State of Minnesota advanced its own assistance measure this past week in the form of an $88 million relief package. The MN Department of Revenue will automatically be distributing checks ranging from $10,000 to $45,000, based on tax records and employee numbers, to bars, restaurants, bowling alleys, breweries, coffee shops and some fitness centers that have seen at least a 30% drop in sales revenue from last year. Roughly 5,800 business are expected to be eligible for these funds. Additionally, the State package includes $114.8 million that will be earmarked for each Minnesota county to distribute to small businesses at the county’s own discretion.

With funding efforts continuing to evolve on both the federal and state level, we are vigilantly monitoring the situation and will provide additional updates when important legislation is passed. Please reach out to us to discuss how your business can take advantage of these relief measures.

Many companies held virtual annual shareholder meetings in 2020.  This was principally the result of the COVID-19 pandemic and related state shutdowns or stay-at-home orders.  Typically, companies switched from the more traditional, in-person annual shareholder meeting to an audio-only or hybrid virtual meeting.  In many instances, the switch was done “on the fly” after notice of the annual meeting and the other proxy materials had been mailed to shareholders.  This was the best that could be accomplished given that most shutdown orders occurred in the middle of the 2020 spring proxy season.

Companies have time to prepare for the probability that their 2021 annual shareholder meeting will need to be a virtual or hybrid meeting.  Traditional, in-person annual meetings may not be permissible or socially acceptable in 2021 as COVID-19 persists.

Last year, many accommodations were made to allow companies to switch quickly to a virtual meeting, and shareholders and other participants in meetings generally were tolerant of technical and other glitches.  This year, however, companies should anticipate that shareholders and other participants will insist on more “user-friendly” meetings.  Investor expectations are likely to be more exacting.  Shareholders will be more demanding about process, notice, procedures and transparency.  These raised expectations should be welcomed and embraced by companies.  How shareholder meetings are conducted is a good governance indicator, and many improvements should be available this year and not be difficult to adopt.  And, this year, companies have time to plan!

Below is a list of factors to consider in connection with planning your 2021 virtual/hybrid shareholder meeting.  Start now, and use the extra time to avoid the hectic days (and nights) experienced in 2020.

• Decide on the type of annual shareholder meeting to be held.  Each company will need to decide whether its annual meeting will be virtual-only, physical-only, or a hybrid.  A decision will also need to be made as to whether access will be audio-only or audio plus video.  Most virtual meetings held in 2020 were audio-only.  But technology advances in the last 12 months should make video a virtual meeting alternative.  Video can liven otherwise dull, unengaging meetings.  Video also helps eliminate the natural suspicion for what cannot be seen and can greatly enhance the shareholder experience.

• Check technological improvements.  Many service providers have improved their offerings and made changes to the services available.  Most concerns voiced about 2020 virtual meetings focused on responding to shareholder questions and the inability of shareholders to ask questions of management, see or hear questions asked by others, and communicate with other shareholders during the meeting in real time.  Additional concerns were voiced as to how difficult it was for shareholders to access the meetings.  The “clunky” control number process was often forgotten or difficult to use for street name shareholders.  You can expect advancements in these areas.  The right to access shareholder meetings, the right to participate, and the right to vote are the most important aspects of a shareholder meeting.  Technological changes should help companies enhance the meeting and become more comfortable with virtual, video meetings.

• Engage your technical services provider early.  The number of virtual/hybrid shareholder meetings increased from 248 in 2019 to 1,494 in first six months of 2020, a 502% increase.  As a result, many companies were not able to get their first choice for a shareholder meeting date and time when they scheduled their technical services provider.  It will make the process easier if, as early as possible, you choose your first, second and even third choices for a shareholder meeting date (and pay attention to any resulting changes required to the record date and other items) and then engage your technical services provider.

• Focus on transparency and ease of use.  As noted above, the most common complaints about 2020 virtual meetings centered on the Q&A portion of the meetings.  Many criticized the process used by some companies to collect shareholder questions, questioned whether all questions received were answered, or accused companies of cherry-picking questions to answer or not having a clear or intuitive process to submit questions.  The key here is transparency and ease of use.  Have a clear process and rules of conduct, and communicate the process and rules before, during and after the meeting.  Consider posting appropriate questions on the meeting’s website and having the technical services provider collect questions and post answers on an ongoing basis.  If, because of time limits or other constraints, all appropriate questions are not answered in the meeting, post the questions and answers on the company’s website to which participants in the meeting have been directed before and during the meeting.  Rules of conduct should be reviewed and updated in a clear and concise manner.  The conduct rules should be disclosed in the proxy materials and made available on the meeting website. Usually, not much needs to be revised with the rules, and clear and concise rules can eliminate concerns and unwanted suspicion.

• Check legal issues, state law and governing documents.  Each company needs to review applicable state law and its governing documents to determine if a virtual meeting is permissible and whether revisions to the governing documents are necessary.  Also, if you relied on state executive orders in 2020 to conduct a virtual/hybrid, make sure they are still in place and applicable, and check to see if the Securities Exchange Commission has updated its 2020 accommodative policies and rules.

• Be cognizant of proxy advisory firm developments and updates.  Both Institutional Shareholder Services (ISS) and Glass Lewis issued accommodative policies during 2020 that made virtual meetings possible.  You should be aware of and comply with their recent updates.  Proxy advisory firm ISS expressed concern about virtual annual meetings in its 2021 policy changes related to annual meeting formats but continued its policy of supporting a company’s unilateral decisions to hold virtual-only meetings where the pandemic affects the company’s ability to hold an in-person meeting.  The most interesting statement in the updated policy is ISS’ confirmation that more will be expected of companies that hold virtual-only meetings in 2021:  “The ongoing pandemic presents a compelling rationale for restricting physical meetings, but ISS is concerned about the potential long-term impacts to shareholder rights if companies move to a virtual-only format.  However, ISS notes that evolving technological capabilities could provide a virtual meeting experience that sufficiently approximates the in-person meeting.” As stated above, companies will be pushed to enhance the shareholder experience.Glass Lewis’ recent publication removes the temporary exception to its policy on virtual shareholder meetings held between March 1, 2020 and June 30, 2020.  Glass Lewis renewed its standard policy, which provides that companies holding virtual-only format meetings should utilize robust disclosure in the proxy statement addressing the ability of shareholders to participate in the meeting.  Specifically, this includes efforts at attempting to approximate an in-person experience and focusing on disclosure of shareholders’ ability to ask questions at the meeting; procedures, if any, for posting appropriate questions received during the meeting and the company’s answers on its public website; as well as logistics for meeting access and technical support.  Companies that do not comply with Glass Lewis’ policy can expect a recommendation to vote against governance committee members.  Glass Lewis, however, did acknowledge that virtual meetings can be a useful complement to traditional, in-person shareholders meetings by expanding participation of shareholders who are unable to attend a meeting in person, but it also noted that virtual-only meetings have the potential to curb the ability of shareholders to meaningfully communicate with management.

• Engage with shareholders.  All companies are different, as are their constituents.  Each company should consider the number of shareholders, shareholder proposals and votes at prior years’ meetings, and engage with shareholders to determine their preferences and concerns about the process and conduct of the annual shareholder meeting.  Each company should attempt to determine which features of the annual meeting are important to its shareholders.  Feedback is key and should be solicited and incorporated into the company’s plans.  A shareholder meeting can meet with shareholder expectations only if a company solicits input and figures out what is desired and how to deliver the best experience.

• Prepare for technology glitches and establish backup plans.  Each company should prepare contingency plans for conducting the meeting.  Few major breakdowns occurred during 2020, but no company wants its annual meeting interrupted by a power or video failure or telephone outage with no plans on how to address the issue.  Companies should have a back-up plan.  Also, many companies set up a communication channel only for the company’s principal participants that is independent of the main meeting connections.  All too often, communication is necessary in the background to address issues that arise or determine who best to answer a shareholder question.

• Have a dress rehearsal.  Hold a dress rehearsal that is an abbreviated form of the shareholder meeting that involves all participants from the company and people acting as shareholders.  A rehearsal will make everyone more comfortable and potentially uncover problems that can be solved before the meeting.

• Review the 2018 Recommendations from The Best Practices Committee for Shareowner Participation in Virtual Annual Meetings.  In 2018, this Committee published a list of best practices for holding virtual annual meetings.  The list is helpful and likely will be updated soon.  But the best practices outlined remain instructive and relevant.

Moving from an in-person, traditional annual shareholder meeting to a virtual/hybrid shareholder meeting can be stressful and full of challenges, especially with the first virtual/hybrid meeting.  But demands for more robust and transparent meetings will likely arise in 2021, and companies should start planning now so that they can begin building upon their 2020 experiences and deliver an enjoyable and informative annual shareholder meeting.

The Minnesota House of Representatives released the committee structure and chairs for the 2021-2022 legislative session the evening of November 30, 2020. On December 1, 2020, the State released the November budget forecast, which has improved significantly since an unusual mid-year forecast last summer.

November Forecast

The numbers released December 1, 2020, show that the $4.7 billion deficit projected for the 2022-2023 biennium has shrunk to $1.27 billion. The improved forecast is largely due to higher consumer spending, and thus higher tax revenue, than expected. However, the COVID-19 pandemic continues to provide a higher level of uncertainty than usual.

Governor Tim Walz will use the new figure to develop his proposed state budget for the FY 2022-2023 biennium, though the updated February forecast will guide the final budget.

In a turnaround, while the May forecast projected a $2.4 billion deficit for the current biennium (FY 2020-2021), the November forecast projects a $641 million surplus. As Governor Tim Walz and legislative leaders are currently discussing possible relief for businesses struggling as a result of Minnesota’s latest  COVID-19 “pause” affecting restaurants, fitness centers and other businesses, the surplus is welcome news and is likely to be spent.

For the next biennium, which begins July 1, 2021, decision-makers will consider a number of options to fill the $1.27 billion shortfall, including dipping into the state’s $2.4 billion budget reserve, tax increases, spending reductions, federal dollars, and payment shifts.

House Committee Structure and Chairs

On November 30, the Minnesota House of Representatives released committee information for the 2021-2022 legislative session. In addition to emphasizing the diversity of the new committee chairs, Speaker Melissa Hortman (DFL-Brooklyn Park) said the new committee structure focuses on the House’s priorities: “recovering and rebuilding from COVID, affordable health care, excellent educational opportunities from preschool through job training, and economic security for our families.”

Representative Rena Moran (DFL-St. Paul) takes over the Ways and Means committee following the retirement of the former chair. Several newer members will hold a gavel in major committees for the first time, including Representatives Zack Stephenson (DFL-Coon Rapids, Commerce Finance & Policy), Ruth Richardson (DFL-Mendota Heights, Education Policy) and Jamie Long (DFL-Minneapolis, Climate and Energy Finance & Policy).

Committee membership will be announced later in December, as session begins on Tuesday, January 5, 2021. A full list of the House committees, meeting times and chairs follows.

All hearings are scheduled for 90 minutes. Friday hearings are tentative and will meet at the call of the chair, if needed. Ways and Means will meet at the call of the chair.

The Minnesota Senate released information on committees for the 2021-2022 legislative session, which begins on January 5, 2021, at noon. Included in the information is the list of committees that will be formed, the standing committee meeting days and times, and the chair of each committee. Further information, including the size and specific members who will serve on each committee, will come at a later date, closer to the start of the legislative session.

Most of the major committees are unchanged from last session. However, as expected, both Senator Tom Bakk and Senator David Tomassoni, who recently announced they were leaving the DFL Caucus to form a new caucus (but meet with the Republican Caucus), were given gavels to key committees. Sen. Tom Bakk will chair the Capital Investment committee, and Sen. David Tomassoni will chair the Higher Education committee. Senator David Senjem, who previously chaired the Capital Investment committee, will now chair the Energy Finance & Policy committee.

Another noteworthy change is Senator Carla Nelson taking over as chair of the Tax committee. She and former tax chair, Senator Roger Chamberlain, are switching committees, with Sen. Chamberlain taking over as the chair of the Education Finance & Policy committee.

The House is expected to release committee information next week. A full list of the information released today follows.

Update: November 6, 11:00AM CT

Since the initial posting on November 4, 2020, votes have continued to be tabulated and initial clerical errors have been fixed, resulting in changes to the following races:

Minnesota House of Representatives

HD 6A: Incumbent Julie Sandstede (DFL) now leads by 50 votes. Initial counts indicated she had lost.
HD 27B: Challenger Patricia Mueller (R) now leads incumbent Jeanne Poppe (DFL) by more than 600 votes.

These changes do not change the partisan make-up in the House, which remains 70 DFL / 64 R. Speaker Melissa Hortman is expected to remain in that position.

Minnesota Senate

SD 14: Challenger Aric Putnam (DFL) appears to have bested incumbent Jerry Relph (R).

Republicans maintain the majority, but by the slimmest of margins (34-33). Majority Leader Paul Gazelka is also expected to retain his leadership post.

While several races are subject to automatic recounts, Minnesota history has shown that the likelihood of vote shifts significant enough to change the outcome are unlikely.

November 4: The Morning After

While Governor Tim Walz (DFL) and the other constitutional officers were not on the ballot in Minnesota this year, all 134 State House seats and 67 State Senate seats were, as well as President, a United States Senate seat and all members of the United States House of Representatives. The 2020 election has been one of the most contentious in recent memory. From national races down to state and local races, the disagreements have been sharper and, in many cases, louder between candidates, political parties and stakeholders.

One of the unusual facets of this election is the incredibly high number of absentee and early votes. By the end of Monday, November 2, nearly 1.84 million Minnesotans had already cast their ballot—that equals 62% of the total number of votes cast in the 2016 presidential election. Minnesota Secretary of State Steve Simon had announced that mailed ballots postmarked by election day would be counted if they were received within seven days. However, the Federal Eighth Circuit Court of Appeals ruled that any ballots received after Election Day must be segregated from other ballots, in case those votes are challenged in court. Secretary Simon has said that the number of outstanding ballots will be released at the state House level and that any late-arriving ballots will be tabulated and the updated results would be posted each day. Expect further court action if results are close or change due to late-arriving ballots. Additional information from the Secretary of State’s office regarding the tabulating of absentee ballots is available.

Important: Please note that all of the results and analysis are based on the published results as of Wednesday morning. There remain an unknown number of accepted, but yet uncounted ballots. Results are subject to change based on these ballots that have not yet been counted, as well as additional ballots that are received in the next week.

Federal Races

President: By voting for Joe Biden, Minnesota retained its standing as the state with the longest streak of voting for the Democratic presidential candidate. The last Republican who received a majority of Minnesota votes was Richard Nixon.

U.S. Senate: Not surprisingly, Minnesotans also sent Senator Tina Smith (DFL) back to the Senate for her first full term (she had been completing former Senator Al Franken’s term).

Congress: As expected, most incumbent congressional members sailed to an easy victory, but there was one notable exception:

District 7: Collin Peterson (D) has represented western Minnesota for three decades. An original founder of the conservative Blue Dog coalition, Peterson is known as the most conservative Democrat currently serving in Congress. As his district has become more Republican over the years, he has been able to fend off challengers, though by increasingly narrow margins. Former lieutenant governor and President of the Minnesota Senate, Michelle Fischbach (R), bested Peterson by a preliminary margin of 53.5%-39.7%. She was considered the strongest candidate Peterson had faced in decades.

Minnesota House of Representatives

Number of Seats                        134
Needed for Majority                    68
Partisan Split before Election      75 DFL, 59 R
Preliminary 2021 Partisan Split   70 DFL, 64 R

In 2018, the DFL took control of the House of Representatives by sweeping most of the districts in the Minneapolis-St. Paul suburbs. Even though many of these suburban seats were long-time Republican bastions, DFL candidates benefitted from strong opposition to President Donald Trump in the mid-term elections. Republicans, by contrast, retained a strong hold on exurban Twin Cities seats and much of rural Minnesota.

In 2020, Republicans needed to pick up nine seats to win back the majority in the House. Once again, the battleground proved to be the Minneapolis-St. Paul suburbs where Republicans targeted the seats they narrowly lost in 2018. House Republicans campaigned on public safety and opposition to Governor Walz’s response to COVID-19. DFLers responded by linking their opponents to President Trump while also campaigning on health care issues. Money was also a big issue in the House races as the DFL outraised their Republican counterparts. Since the Senate Republicans already held the majority, the business community contributions went to the Senate Republicans instead. It was deemed a safer bet to retain Senate control than take over the House.

The House DFL lost a net of five seats but should nonetheless retain control of the House with a 70-64 majority.  The margin of seats may change as final absentee votes are counted. Key races include:

HD 5A: Incumbent John Persell (DFL) / Matt Bliss (R)—Winner Matt Bliss
HD 6A: Incumbent Julie Sandstede (DFL) / Robert Farnsworth (R)—Winner Robert Farnsworth
HD 19A: Incumbent Jeff Brand (DFL) / Susan Akland (R)—Winner Susan Akland
HD 54A: Incumbent Anne Claflin (DFL) / Keith Franke (R)—Winner Keith Franke
HD 55A: Incumbent Brad Tabke (DFL) / Erik Mortensen (R)—Winner Erik Mortensen

With a number of senior House DFLers retiring or losing reelection bids in party primaries, some key committees will have new Chairs. Longtime Ways and Means Chair Lyndon Carlson (DFL-New Hope) has retired, so this important budget committee will have a new leader. There has been speculation that Health and Human Services Policy Chair Rena Moran (DFL-St. Paul) or K-12 Finance Chair Jim Davnie (DFL-Minneapolis) might be in line for this committee.

Speaker of the House Melissa Hortman (DFL-Brooklyn Park) has signaled that she would like to reduce the number of committees because the session will likely be virtual again due to COVID-19. This, however, may not apply to the Health and Human Services policy and finance committees. Speaker Hortman has indicated that these issues will be broken out into multiple committees.

Minnesota Senate

Number of Seats                           67
Needed for Majority                     34
Partisan Split before Election       35 R, 32 DFL
Preliminary 2021 Partisan Split    35 R, 32 DFL

In 2016, Senate Republicans surprised everyone by sweeping into the majority on the coattails of Donald Trump’s near win in Minnesota with a narrow 34-33 majority. This number was expanded to 35-32 after a special election in 2018. Because they were not on the ballot in 2018, Republican senators were spared the Trump backlash in the Minneapolis-St. Paul suburbs. The campaign issues for the Senate were the same as the House. Republicans campaigned on public safety and Governor Walz’s COVID-19 response, while DFLers campaigned on health care and against President Trump.

As of this morning, it appears that the Senate remains in Republican control. In Plymouth, Ann Johnson Stewart (DFL) defeated Greg Pulles (R) in the seat left vacant with the retirement of Senator Paul Anderson (R) and, in the Burnsville/Savage area, Lindsey Port (DFL) beat incumbent Senator Dan Hall (R). Republicans responded with the defeat of Matt Little (DFL) to Zach Duckworth (R) in the Lakeville area. With several close races and likely more votes to be counted, we’ll be watching to see if any close races flip. Key races included:

SD 14: Incumbent Jerry Relph (R) / Aric Putnam (DFL)—Winner Jerry Relph
SD 26: Incumbent Carla Nelson (R) / Aleta Borrud (DFL)—Winner Carla Nelson
SD 27: Gene Dornink (R) / Incumbent Dan Sparks (DFL)—Winner Gene Dornink
SD 34: Incumbent Warren Limmer (R) / Bonnie Westlin (DFL)—Winner Warren Limmer
SD 44: Open seat: Greg Pulles (R) / Ann Johnson Stewart (DFL)—Winner Ann Johnson Stewart
SD 56: Incumbent Dan Hall (R) / Lindsey Port (DFL)—Winner Lindsey Port
SD 58: Zach Duckworth (R) / Incumbent Matt Little (DFL)—Winner Zach Duckworth

If the current Republican majority holds, few changes would occur in key committees. Senators Jim Abeler (R-Anoka) and Michelle Benson (R-Ham Lake) are expected to share the Health and Human Services finance committee duties again. However, a number of the Senate races listed above are very close and could shift, depending on whether all of the absentee and early votes have been counted.

2021 Session Preview

The 2021 Legislative Session will convene at noon on Tuesday, January 5^th. Legislators will be faced with a number of issues.

Redistricting:  The campaign to win the House and Senate was intense because the winners will control the ability to set House and Senate districts for the next ten years. The DFL entered the campaign with a share of power due to Governor Walz’s four-year term, while Republicans were desperate to win the House and/or retain the Senate. With the House in DFL control and the Senate in Republican control, a neutral redistricting plan is expected and will likely come from the courts.

Budget Deficit/Biennial Budget: In the 2021 Legislative Session, the Legislature must fix a $2.426 billion deficit in the current biennium (FY 2020-2021), which ends on June 30, 2021, and adopt a new biennial budget for FY 2022-2023 with a projected $4.7 billion deficit. The State currently has $2.7 billion in reserves and it is expected that these reserves will be used to fix the deficit in the current biennium. These deficit numbers will certainly change when Minnesota Management and Budget (MMB) issues its economic forecasts in November of 2020 and February of 2021. It is possible that these deficit numbers will be lower due to an improving economy. State revenue collection numbers, which are reported every month, are running ahead of projections. With the House in DFL control and the Senate in Republican control, a long protracted budget stalemate is expected. The House will want new taxes as a deficit solution, while these new tax proposals will be vigorously opposed by Senate Republicans. Senate Republicans will propose budget cuts and one-time solutions to close the budget gap.

COVID-19: The ongoing pandemic will continue to overshadow the legislature in 2021. Continuing negotiations regarding appropriate state response is likely, encompassing both public health regulations and financial support for individuals, businesses and other entities.

On October 1, 2020, the United States Department of Health and Human Services (HHS) announced Phase 3 of the CARES Act Provider Relief Fund General Distribution, which makes $20 billion available to an expanded group of eligible providers, including behavioral health providers. In addition, providers who previously received distributions from prior phases of the Provider Relief Fund are also eligible to apply for this phase. Eligible providers also include those who began practicing between January and March 2020. Providers who have not yet received Provider Relief Fund distributions equal to approximately 2% of patient revenue will receive a payment that, combined with prior distributions (if any), totals 2% of patient care revenue.

Funds remaining in the Phase 3 distribution will be used for an equitable add-on payment in excess of 2% of patient revenue. The formula for calculating this add-on payment has not been released but will take into consideration:

1.  A provider’s change in operating revenue from patient care,
2. A provider’s change in operating expenses from patient care, including expenses incurred related to COVID-19, and
3. Payments already received from prior Provider Relief Fund distributions.

The application portal and FAQs for Phase 3 were rolled out on October 5, and providers currently have until November 6, 2020, to apply. As with previous deadlines, HHS may extend that deadline but for now has encouraged providers to apply early.

This announcement follows the recent release of the long-awaited guidance regarding reporting requirements for providers that received prior Provider Relief Fund distributions, which we discussed here.

The United States Department of Health and Human Services (HHS) recently posted the reporting requirements and guidance for providers who received funds from the CARES Act Provider Relief Fund.  Pursuant to the applicable terms and conditions, providers that received payments exceeding $10,000 in the aggregate are required to report on the following schedule:

• January 15, 2021: reporting portal opens.
• February 15, 2021: first reporting deadline for all providers.
• July 31, 2021: final reporting deadline for providers that did not spend all funds prior to December 31, 2020.

Some of the key takeaways from HHS’s guidance include:

1. Calculation of Lost Revenue

HHS materially changed the calculation of “lost revenue.” Lost revenue is now defined as a year-over-year change in net patient care operating income, which is equal to patient care revenue for the year minus patient care-related expenses for the same year.  This new definition is significantly different than the previous one, which defined “lost revenue” as any revenue that a health care provider loses as a result of the coronavirus.  Expenses were not previously included in the calculation.  Providers receiving funds and relying on the prior guidance regarding lost revenue must consider the effect of the modified definition on the use and reporting of distributions.  Furthermore, the ability to use Provider Relief Fund distributions for lost revenue is limited to a provider’s 2019 net gain from health care-related sources.  Providers that do not spend all of their distributions by the end of 2020 will have an additional six months to use the funds for allowable expenses or lost revenue.

2. Eligible Expense Reporting

Under the new guidance, applicable expense reporting requirements are based on the amount of the distribution the provider received.  Providers receiving between $10,000 and $499,999 in aggregated payments will report health care-related expenses in two aggregate categories: (1) General and Administrative expenses; and (2) other health care-related expenses.  Providers receiving $500,000 or more in total payments must provide additional detailed information, including a breakdown of expenses in subcategories such as mortgage/rent, insurance, personnel, fringe benefits, new equipment or software lease payments, utilities/operations, and other general and administrative expenses.  In the other health care-related expenses category, providers must detail expenses in specific sub-categories, including supplies, equipment, information technology, facilities, and other health care-related expenses.

3. Recipient Audits

Providers receiving $750,000 or more in aggregated distributions in 2020 (including Provider Relief Fund payments and other federal financial assistance) are subject to Single Audit requirements pursuant to 45 CFR 75.501.

Further clarification on the guidance will likely be forthcoming and, as we have seen numerous times throughout the past six months, HHS may make additional changes to the guidance in the future.  We will continue to monitor updates on the guidance.

The Department of Health and Human Services (HHS) has extended the deadline for qualified providers of dental and Medicaid services to apply for CARES Act Provider Relief Funds under the current Phase 2 General Distribution.  In addition, as reported last week, HHS announced that private-pay assisted living/memory care providers will also be eligible to apply for CARES Act Provider Relief Funds under Phase 2 General Distribution. The deadline to submit an application is now September 13, 2020.

Like other providers applying for Phase 2 funding, eligible dental and Medicaid providers and assisted living communities will receive a payment that is approximately 2% of their annual revenue from patient care.

Providers are encouraged to apply even if they are uncertain if they are eligible. Providers MUST apply by September 13, 2020, to be eligible to receive this payment. We do not anticipate this deadline being extended again.

HHS also announced last week that providers who received a payment under Phase 1 of the General Distribution are no longer prohibited from submitting an application under Phase 2 of the General Distribution.  Providers who received a previous Phase 1 General Distribution payment are now eligible to apply and, if they have not yet received a payment that is approximately 2% of annual revenue from patient care, may receive additional funds.

For more detailed information, see the Provider Relief Fund webpage.