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Walz's supplemental budget calls for resources for greater investments

Clark Goldenrod, Nan Madden
Apr 15, 2021
We have called on policymakers to take bold action to respond to the health, economic, and racial justice crises before us. That means making sure Minnesotans can have what they need to get through the ongoing effects of the pandemic and recession, and make structural changes to build a more equitable future.  

Last month, Governor Tim Walz released an updated budget proposal that describes his approach to these challenges. This proposal responds to the state economic forecast released in late February, which showed an improved state budget picture compared to the November forecast, although state general fund revenues are still down compared to what was anticipated in February 2020. 

Walz’s revised budget adapts to the new forecast figures by: 
  • Increasing his new general fund investments by $295 million in FY 2022-23 through a combination of revising some original proposals and new initiatives; 
  • Adjusting his revenue-raising plan, which now proposes raising a net of $656 million in general fund revenues in FY 2022-23; and 
  • Restoring the strength of the state’s budget reserve.  

New proposals to invest in students, families, and workers 

The largest new investment added in the supplemental budget is in E-12 Education: an additional $68 million in FY 2022-23 for compensatory aid. This aid goes to schools with a higher percentage of students who are eligible for free or reduced-priced meals. This proposal addresses the issue that schools are facing a drop in this aid because the aid is based on the number of qualifying students, but during the pandemic, many families across the state didn’t fill out the appropriate forms even though they may have qualified for assistance.  

Walz proposes a statewide earned sick and safe time benefit standard for workers. His proposal is very similar to that found in House File 7. Under this proposal, employers must at a minimum allow workers to earn one hour of sick leave for every 30 hours worked to earn up to 48 hours of leave per year. We’ve written before about the benefits of paid leave for workers (particularly low-wage workers and workers of color), businesses, and the economy.     

The governor also recommends additional economic support for the very low-income families participating in MFIP, the Minnesota Family Investment Program, who disproportionately work in industries with high levels of job loss in the COVID-19 pandemic. The proposal would invest $14 million in FY 2022-23 to provide an annual cost of living adjustment in cash assistance so that these families and children can better meet their basic needs.  

Walz’s budget proposal would also protect the state’s budget reserve, sometimes called Minnesota’s rainy day fund, which is a crucial tool that the state can use to put Minnesotans first during tough times. The governor’s January budget proposal, which was put forward when the state was facing a projected deficit, would have used $1 billion from the reserve to help fund essential services Minnesotans are counting on. Additionally, due to a decision made in the 2019 Legislative Session, almost $500 million was already scheduled to be withdrawn from the reserve this July. Together, this would have reduced the budget reserve by almost two-thirds. Because of the improved near-term budget outlook, Walz now proposes largely keeping the state’s $2.4 billion reserve whole. 

Tax changes 

Walz’s supplemental budget continues to recognize the need to raise revenues to address the pandemic, protect public services Minnesotans count on, and build a more equitable recovery. While the state’s short-term budget picture has improved, more resources are needed to sustainably fund public services and make structural changes that tackle economic, racial, and geographic disparities. Walz’s budget raises a net of $656 million in general revenues in FY 2022-23 and $840 million in FY 2024-25.  

As in the January proposal, the governor focuses his revenue-raising on those with the most resources, including through a new millionaires’ income tax bracket and an additional tax on large amounts of capital gains. His budget would also raise the state’s corporate income tax rate and make policy changes related to profits earned overseas. 

The major changes to Walz’s revenue plan compared to January are a new section that addresses how the state would adapt to changes in federal tax law (often called tax conformity), and further boosting the after-tax incomes of lower-income workers and families, who have been hit hardest by the pandemic. It no longer proposes to raise taxes on tobacco products, but continues to propose changes to how vaping products are taxed.   

His proposal now contains a stronger expansion of the state’s Working Family Tax Credit (WFC). This proposal would increase the size of the tax credits that lower-income workers and families can receive, and make more workers and families eligible – including younger workers. It includes a one-time provision that would allow workers and families to calculate their WFC based on their 2019 or 2020 income – following a similar federal policy change so that those who lost wages or their jobs during this pandemic year don’t see further economic hardship from a reduction in their tax credit. The property tax refund for renters (Renters’ Credit) would be expanded as well. 

In terms of federal conformity, some of the larger pieces are a proposal for $241 million in tax reductions in FY 2022-23 for profitable businesses that received federal PPP loans, and a $260 million tax reduction for workers who received unemployment insurance benefits. 

What's next 

Policymakers need to set the state’s next two-year budget in this legislative session, and with his supplemental budget, Walz has laid out his priorities and approach. We’re also watching for the administration to release plans for use of additional federal dollars that will be coming to the state

The state’s budget picture has improved, but we know that many Minnesotans are still out of work, struggling to pay the rent and put food on the table. Minnesota must take bold steps to address the pandemic, but we also need to address the ways that past disinvestment made the recession worse for so many, and make real changes to build a more equitable future.  

Stay tuned to how the budget plans from the Legislature stack up against these goals.