It’s good to be the governor, especially when considering the timing of this year’s budget debate.
First, he’s first. On Tuesday, Gov. Tim Walz filled a large state Capitol room with reporters, commissioners, staff and those with a keen interest in that budget and laid out how he would spend the state’s current revenues and proposed revenues. For the rest of the 2019 Legislative session, all budget conversations start there.
“This is a strategic budget that allows us to maintain what we have while investing in the future,” Walz said of his plan for how to spend $49.5 billion over two years. “This budget is about building One Minnesota, the foundation of which is education, health care and community prosperity.”
This year, presenting his priorities first has another advantage for Walz. He gets to use the most recent forecast of state revenue collections over the two-year budget period, which revealed a $1.5 billion surplus based on current spending. That December number might be something of a high-water mark since actual tax collections since then have been below forecast and threats of an economic downturn have grown more worrisome.
That has left Walz with the opportunity to produce a budget plan that increases spending in all the areas most dear to him and his supporters. In fact, it is difficult to spot a request that he said no to. When asked about budget cuts in his plan, Walz responded by saying that some programs didn’t get inflationary increases from current levels.
The two-year budget includes inflationary increases plus $2 billion in new spending. Revenue would go up by $1.267 billion and the ending fund balance would fall from $1.54 billion to $790 million. But both the current budget and the proposed budget would be protected by a state rainy day fund of $2.425 billion.
Walz, the longtime public school teacher, increases basic school funding by 3 percent in the first year and 2 percent in the second at an increased cost of $523 million.
In health care, he replaces the existing health reinsurance plan with a subsidy program to reduce insurance premiums for those buying policies through MNsure. His budget also adds a state tax credit to cap those premium costs at 10 percent of a family’s income and — as promised during the 2018 campaign — sets up a program to let more people in the state buy those policies. In keeping with his campaign theme, that version of Medicare buy-in would be called ONECare Minnesota.
The list of proposals could fill a binder. In fact, it did. It was presented to reporters in a binder with a cover reading “Budget for One Minnesota.” There’s more money to subsidize child care. There’s a $284 million investment in affordable housing (through both preservation and new projects). There’s $70 million for a statewide broadband grant program. There are income tax cuts for middle-income wage earners, farmers and small business owners. There’s an expansion of eligibility to the working family tax credit. There’s a tax cut for those who pay income taxes on Social Security. There’s the first increase since 1986 in the basic welfare grant. There are increases in funding for the University of Minnesota and the Minnesota State systems. And there are large increases in the money the state shares with cities and counties.
And that doesn’t even count transportation, which would be boosted by a historic 20-cent increase in the current gas tax of 28.6 cents per gallon; plus increases in car tab fees; plus a change in the way the state values cars; plus a Metro counties hike in the sales tax on car sales. All that not only raises more than $10 billion over 10 years — mostly for road and bridge construction and maintenance — but also for transit.
The gas tax hike would also have a positive impact on Walz’s general fund budget, since it would replace money recently moved from the general fund to roads and bridges.
That means that a big chunk of the money needed to fuel his budget plan has a questionable future. Senate majority Republicans have said no to a gas tax increase. And they have said no to extending the provider tax on health procedures and services. Combined, those sources bring in nearly $1.2 billion in revenue.
Walz also raises more money through his version of federal income tax conformity. While he said middle-class taxpayers left out of the federal tax reform will see decreases in their state taxes, other individuals and businesses would pay more.
Interest groups were understandably gleeful. Press releases flowed briskly following the presentation.
“Planned Parenthood Applauds Governor Walz for Prioritizing Reproductive Health Care in His Budget”
“IUOE LOCAL 49 RESPONDS TO GOV. WALZ’S BOLD TRANSPORTATION INFRASTRUCTURE PLAN”
“Minnesotans Praise Gov. Walz’s Budget that Protects and Expands Affordable Health Care”
“President Kaler: Governor Walz’s budget recommendation sincerely appreciated”
“CGMC President: Governor’s budget proposal makes key investments in Greater Minnesota”
“Minnesotans for a Smoke-Free Generation Applaud Governor for Quit-Tobacco Support”
“Governor Walz Releases Budget to Improve the Mental Health System”
“Education Minnesota supports historic funding increase for public schools”
“Governor’s Budget Proposal Reflects Housing as Urgent Priority for Minnesota”
“Governor Walz, Lt. Gov. Flanagan commit to affordable, accessible health care for all Minnesotans”
A ‘cold California’
Walz had a ready response to what he anticipated would be GOP criticism of his decision to go all in on funding the priorities he campaigned on, a response that is both true and blunt: He told voters he would raise the gas tax and increase spending on key programs — and he won the election.
“Minnesotans spoke loudly, they spoke clearly, they value their quality of life, they understand what makes Minnesota different, they’re not tolerant of running up massive debts, but they want to make sure that we’re leading and competing on the toughest issues,” Walz said.
Is he OK with the state climbing the list of most-taxed states, perhaps from 5th to 4th? Walz said he was. “We are also in the top of health care outcomes, we’re near the top in education, we’re near the top in job growth and family incomes. All of those things come out of this,” Walz said. “What we’re proposing is a state that is invested in things that matter — education, health care and community prosperity.
“Even in a cold state that gets to 70 below, we are the only state in the Upper Midwest that has an influx of people coming in,” he said.
Republican legislative leaders appeared next and appeared surprised not at the increases in spending and taxation but at the scope of both. “His first budget is the kind of budget you get when you promise everyone everything,” said Senate Majority Leader Paul Gazelka, R-Nisswa. “There are so many things here that it is hard to fathom how how much is there. I’m not sure if there’s anything the governor did say no to. I’m interested in that, but I don’t see anything in there.”
Gazelka said the budget puts the state on the path to being “a cold California.” And while there are items in the Walz budget that could get GOP support, he said it ends if higher taxes are required. “We have a $1.5 billion surplus, we have roughly $2 billion in reserves. The place to look for covering what all of us think are important is not more taxes,” Gazelka said.
House Minority Leader Kurt Daudt of Crown said his “jaw hit the floor” when he heard the numbers and borrowed a phrase used earlier by his Senate colleagues. “This doesn’t make us One Minnesota, this makes us One EXPENSIVE Minnesota.”
A bind for House DFLers?
Walz didn’t bring details of a proposed new bonding bill, but he did mention a price tag — $1.2 billion in borrowing for construction projects. Gazelka said that wasn’t going to happen, preferring the schedule of doing general budget in odd-year sessions and bonding in even years. Yet a lot of Walz’s proposals — in transit, in affordable housing, in economic development grants — are in the bonding plan, not the budget released Tuesday.
While the focus Tuesday was on Walz and GOP opposition in the Legislature, his budget plan put both House DFL leaders and Senate GOP leaders into something of a political bind. While House leadership supports many of the spending priorities expressed in the numbers, they have been skeptical about the solidity of the surplus. Not only did the surplus not take into account the inflationary pressures on current spending, but it may not be sustained in the next forecast, which is due Feb. 28.
House Speaker Melissa Hortman of Brooklyn Park has also been less certain about a gas tax, saying only she sees the need and wants to look at ways to pay for it. Not only is 20 cents plus tab fees at the top of where anyone thought Walz would go, but Hortman’s members face voters two years sooner than Walz will, and the DFL majority depends largely on the freshmen who swung moderate swing suburban districts from GOP to DFL.
She and House Majority Leader Ryan Winkler of Golden Valley praised Walz’s priorities and said they were “excited to work on behalf of all of us” without specifics on the revenue side.
The GOP also will have to say no to a lot of groups and causes that Walz said yes to. And GOP leaders have to sell a far less sexy message of tax burdens and affordability and sustainability than on all the benefits of higher spending.
Gazelka gave a typically understated prediction for how this budget would impact the rest of the 2019 session. “Every budget in divided government is difficult. We have two very different points of view and at the very end we have to come together and figure it out. I don’t know if this feels any different from any of the other ones.”