The Walz administration’s recently released budget proposal names as their priorities making Minnesota the best state for children, investing in the state’s economic future, and promoting the health and safety of Minnesotans.
The historic
$17.6 billion projected general fund surplus for FY 2024-25 and $8.4 billion structural balance for FY 2026-27 make clear the opportunity to make transformational investments to build a more equitable future, with a focus on those who face the greatest barriers to taking part in Minnesota’s prosperity, including lower-income and Black, Indigenous, and People of Color (BIPOC) Minnesotans.
In his budget proposal, Governor Tim Walz proposes $11.2 billion in additional funding for public services in the two-year FY 2024-25 budget cycle, with the largest amount of new dollars going toward education, economic development, and health and human services. He also proposes $5.4 billion in tax reductions in FY 2024-25, with the biggest component being a one-time tax rebate. Not all of these new dollars or tax reductions continue into the next budget cycle; in the FY 2026-27 budget cycle, the additional funding nets $8.7 billion and the net revenue reductions are $945 million.
Here’s our first look at the governor’s proposal, focusing on our priorities and some of the biggest pieces.
Governor Walz Proposed General Fund Net Changes
| |
FY 2024-25 |
FY 2026-27 |
| E-12 Education |
$2.8 billion |
$4.2 billion |
| Economic Development, Energy, Agriculture, and Housing |
$1.8 billion |
$203 million |
| Health and Human Services |
$1.4 billion |
$2.3 billion |
| State Government and Veterans |
$1.2 billion |
$255 million |
| Public Safety and Judiciary |
$860 million |
$855 million |
| Transportation |
$852 million |
$54 million |
| Capital Projects and Grants |
$829 million |
-$28 million |
| Environment |
$696 million |
$155 million |
| Higher Education |
$332 million |
$432 million |
| Debt Service |
$68 million |
$154 million |
| Aids to local governments and property tax reductions |
$429 million |
$187 million |
| Total |
$11.2 billion |
$8.7 billion |
| Revenue reductions |
$5.4 billion |
$945 million |
Child care
Walz’s budget proposal includes strong investments in Minnesota’s children through investments so that more families can afford the child care that meets their needs. These child care investments include $7.4 million in FY 2024-25 to reprioritize the child care assistance Basic Sliding Fee waitlist in order to serve more families, and an additional $90 million a year into Early Learning Scholarships, another mechanism by which lower-income parents can afford the care they want for their young children.
But one reason families have difficulty finding affordable child care is the low reimbursement rates paid to providers participating in the Child Care Assistance Program, in which an average of 15,000 families participate in every month. The current federal recommendations for state child care assistance programs are to set reimbursement rates at the 75th percentile of market rates. Minnesota falls short, with rates currently set at the 40th percentile for infants and toddlers, and the 30th percentile for preschool and school-aged children. The governor proposes $140 million in the FY 2024-25 biennium, using resources from the general fund and Child Care Development fund, to increase the rates paid to child care providers to the 75th percentile of the state’s most recent market survey. Increasing reimbursement rates would ensure greater access to child care, more choice in providers, and less financial hardship for low-income families.
In addition, Walz proposes $353 million in FY 2024-25 intended to reduce the child care provider shortage and strengthen the sector. These investments include retention payments to increase the wages and benefits for child care providers, investments in ongoing training and recruitment efforts, and further grants and supports to support operations and other provider needs.
Health care
Walz’s budget proposal includes a number of important elements to address ways that Minnesotans can fall through the cracks and not have affordable health care coverage.
He proposes $21 million in FY 2024-25 and $95 million in FY 2026-27 to provide 72 months of continuous health care eligibility for children under age 6, and 12 months of continuous eligibility for children ages 6 through age 20, within the state’s Medicaid program, known as Medical Assistance.
When the COVID-19 pandemic first started, as part of the declaration of the public health emergency, Congress added a “continuous coverage” provision to Medicaid so that people wouldn’t lose their health care during the pandemic due to monthly fluctuations in their incomes. With the public health emergency and continuous eligibility soon ending, many Minnesotans could unnecessarily lose their health care coverage unless the Minnesota Legislature acts. Thirty-two states already offer 12 months of continuous eligibility for children.
People with continuous coverage are more likely to seek preventative and regular care to have their needs met, which means a healthier Minnesota.
The governor also proposes $6.4 million in FY 2024-25 and $26 million in FY 2026-27 for several investments in health care access and infrastructure. We’re glad to see his proposal to expand MinnesotaCare coverage to include undocumented children with family incomes below 200 percent of the federal poverty guideline (for example, that would be $60,000 for a family of four). About 18 percent of uninsured Minnesotans are undocumented. When people can get the health care they need, it can lead to better long-term health outcomes as well as economic benefits for our state and local communities. We urge policymakers to go another step further and provide this coverage option for adults as well.
The governor’s proposal also includes investments in IT and translation services aimed at reducing administrative burden and removing barriers that people with disabilities, people of color, and indigenous Minnesotans face in accessing the health care they need.
One of the big ticket budget items is Walz's recommendation of $303 million in FY 2024-25 for Minnesota’s Personal Care Assistance (PCA)/Community First Services and Supports (CFSS) program. This investment would go towards increasing wages and benefits for the PCA workforce, and provide administrative funds to implement a bargaining agreement with the Service Employees International Union (SEIU). Ensuring access to quality home care services is important to advance income and health equity; in January 2020, 62 percent of folks receiving care through PCA services were people of color or Native American. Investing in the PCA/CFSS programs help ensure that both the participants and the workforce within the programs can thrive.
Walz proposes additional net funding of $41 million in FY 2024 and $58 million in each subsequent year to maintain the current level of service delivery within the Department of Human Services’ Direct Care and Treatment (DCT) services. DCT serves approximately 12,000 individuals with mental illness, substance use disorder, and developmental disabilities. In order to continue serving those individuals and provide quality care, the funding would go towards increased compensation and benefits for staff; necessities such as food, drugs, and medical supplies; as well as other operational costs such as building maintenance.
Tax policy
A centerpiece of the Walz budget is the proposed Child Tax Credit.
We’ve called on policymakers to create a Minnesota Child Tax Credit that builds on the documented success of the federal expanded Child Tax Credit in reducing child poverty and hardship, and narrowing racial, income, and geographic disparities in economic well-being. Walz allocates more than $1 billion per biennium to create a Child Tax Credit, which has many similarities with a Child Tax Credit proposal modeled by the Institute on Taxation and Economic Policy that is
estimated to reduce child poverty by 25 percent.
The proposed Minnesota Child Tax Credit would provide $1,000 for each child or eligible adult dependent with special needs, up to a maximum of three dependents. The full $1,000 credit would be available to families up to certain income limits, which are $50,000 for married couples and $33,300 for head of household income tax filers. Families could receive smaller credit amounts until they reach certain income limits, depending on family size. For example, a married couple with three children would be eligible until their incomes reached $80,000. Over 360,000 families are estimated to be eligible for the credit and would receive an average of $1,500.
Walz’s tax plan would also make important steps in removing arbitrary barriers that keep otherwise eligible Minnesotans from qualifying from certain benefits in the tax code. Some Minnesotans use a federal Individual Taxpayer Identification Number, or ITIN, instead of a Social Security Number, for tax purposes because of their immigration status. Walz would end barriers that keep ITIN filers from gaining homestead status on homes they own – barriers that today mean these Minnesotans pay higher property taxes than their neighbors and cannot qualify for the state’s property tax refund. Workers and families that meet all other eligibility requirements could also begin qualifying for the Working Family Credit when filing with an ITIN. These two proposals together have a fiscal impact of about $22 million in FY 2024-25 and $25 million in FY 2026-27.
The governor’s budget would also make some long overdue updates to Minnesota’s K-12 Education credit, which refunds a portion of what lower-income families have paid for expenses related to their child’s education, from school supplies to software to tutoring to driver’s ed,
up to a maximum credit of $1,000 per child. The proposal would simplify the credit and update it for inflation. About 29,600 households would become eligible from this proposal and receive an average of $300. Families with adjusted gross incomes up to about $63,000 would qualify if they have one or two children, and at slightly higher amounts with more children. The total increase in the credit is about $20 million per biennium.
Other major elements of Walz’s tax plan include:
- A more than $500 million per biennium expansion in the Child and Dependent Care Credit. This credit refunds a portion of what families have paid for child care expenses, and currently is focused on families with incomes under about $80,000. Walz proposes substantially increasing the amount of credit families can receive, including providing larger credit amounts for children under age 5. It would also significantly raise the income levels at which families can qualify.
- A one-time $3.9 billion tax rebate. Most of the estimated 2.6 million eligible households would have the rebate automatically sent to them this fall based on the information they submitted on their 2021 income tax return or property tax refund application; others would apply for it on their 2023 state income tax return. Married couples and head of household filers with incomes up to $150,000, and other filers with incomes up to $75,000, would qualify. The rebate would be $2,000 for married and head of household filers, $1,000 for single filers, plus $200 for each dependent.
- Expand Minnesota’s Social Security exemption by another $219 million in FY 2024-25 and $249 million in FY 2026-27. Federal law already exempts between 15 percent and 100 percent of Social Security benefits that Minnesotans receive, and lower- and middle-income Minnesotans can subtract additional amounts from their income taxes. Walz would increase the amount of Social Security benefits that eligible folks can subtract to $10,000 for married couples and $7,800 for single or head of household filers, and substantially increase the income levels that can qualify for the subtraction.
Walz’s budget proposal also includes some revenue-raising proposals, recognizing the need to sustainably fund public services given that so much of the projected surplus is temporary. The primary general fund revenue-raiser is a capital gains and dividend income tax surcharge of 1.5 percent on capital gains/dividend income of $500,000 to $1,000,000, and 4 percent on such income over $1,000,000. This reflects that these forms of investment income are taxed at lower rates at the federal level than wages and salary income. This would raise $661 million in FY 2024-25 and $606 million in FY 2026-27. His budget also proposes additional revenues from automobile registration tabs to fund transportation, and a 1/8th cent sales tax in the seven-county metro area to fund regional transit.
In addition, the governor proposes $676 million in FY 2024-25 and $140 million in FY 2026-27 for various one-time and ongoing funding so that cities, counties, and tribal governments have more resources to meet the needs of their residents. These include:
- $300 million in one-time public safety aid in FY 2024 to cities and counties;
- A $30 million per year increase in general funding to cities (Local Government Aid) and counties (County Program Aid) starting in FY 2025, as well as adjustments to the LGA distribution formula;
- $44 million one-time in FY 2024 to tribal nations to address housing and homelessness needs; and
- $250 million in FY 2024-25 to simplify the process for local governments and nonprofits to access a sales tax exemption on construction materials.
Improving job quality standards, affordable housing, and transportation
The governor proposes substantial investments to expand employment-related benefits to more workers across the state, to ensure more Minnesotans can have an affordable place to live, and improve our transportation infrastructure.
Two important proposals would mean more workers can take care of themselves or a loved one when illness strikes:
- Creation of a statewide insurance program for employees to take paid medical and family leave, with an initial investment of $668 million in FY 2024. After this start up, the costs to the state would be minimal. Employers and employees would pay into a state fund that would provide wage replacements for workers when they need to take a medical leave.
- A statewide earned safe and sick time program, which would cost roughly $3.3 million in FY 2024-25 for enforcement and compliance. Currently, four Minnesota cities have already passed Earned Safe and Sick Time ordinances, and the governor’s proposal would cover Minnesotans across the state. Employers would be required to allow workers to accrue up to 48 hours per year under his proposal.
These are extremely
important policies for improving the lives of Minnesota workers and building a more equitable economy, as low-wage workers and workers of color are less likely to have access to paid leave to care for themselves or family members.
The governor also makes substantial investments in housing and transportation, including:
- $727 million in FY 2024-25 and $42 million in FY 2026-27 in a number of investments through Housing Finance, to support downpayment assistance including for first-time homebuyers, to prevent homelessness, and more; and
- $1.4 billion from the general fund and trunk highway fund to be spent over four years for a multimodal transportation package. The package would leverage additional federal Infrastructure Investment and Jobs Act funding to build out electronic vehicle charging infrastructure, transit in Greater Minnesota, road projects on reservations in Minnesota, and bicycle and pedestrian projects.
E-12 Education
The largest budget area of net new funding in the governor’s budget is E-12 Education -- $2.8 billion in FY 2024-25 and $4.2 billion in FY 2026-27. His two largest education investments would increase per student funding through the general education formula and increasing funding for special education.
Walz proposes increasing funding for school districts through the basic student formula by 4.0 percent in FY 2024 and another 2.0 percent in FY 2025. That’s an increase of $275 per student the first year and another $143 the second year. His proposal would also index the basic student formula to inflation to better meet the needs of students and schools year after year. This proposal totals $719 million in the FY 2024-25 biennium and increases to $1.5 billion in FY 2026-27.
Walz also proposes to increase funding through the special education formula by $723 million in the FY 2024-25 biennium and $840 million in FY 2026-27. This investment works to address the fact that districts across the state are currently providing special education services that are not fully covered by federal and state funding.
Stay tuned for more analysis as the final FY 2024-25 budget comes together.