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Why trying to spend Minnesota’s budget surplus is proving irresistible to legislators

It is an election year, after all.

Gov. Tim Walz
MinnPost photo by Peter Callaghan
Gov. Tim Walz: “Set your expectations pretty low on a supplemental budget because from a fiscally responsible level, I think that needs to be a relatively low one.”
After rolling out his capital project budget request last month, Gov. Tim Walz sent a message to lawmakers about the other budget the Legislature will deal with in 2020, the supplemental budget that offers a chance to tweak the state’s big, two-year budget adopted last May:

“I’ve been clear to our state agencies who have needs,” the DFL governor said. “Set your expectations pretty low on a supplemental budget because from a fiscally responsible level, I think that needs to be a relatively low one.”

So far, it doesn’t appear many lawmakers are listening. DFLers in the Legislature have proposed $800 million or more in new spending while GOP members have introduced a billion dollar tax cut plan.

So how big — or small — might a supplemental spending plan be?

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Since nobody in either chamber or party is going to propose a tax increase in an election year, the range of any supplements to the state’s current $48.5 billion budget is defined by the $1.33 billion surplus. But even that number is constrained by Walz’s stated desire to pay back a loan of sorts that was used to reach the 2019 budget deal. To make the numbers work, the state committed $491 million from the state’s rainy day fund to assure that the two-year budget stays in balance.

What’s more, Walz’s proposed capital spending plan of $2.6 billion will require an additional $180 million in principal and interest payments. That wouldn’t reduce the $1.33 billion surplus this year, but any new spending that has an ongoing impact certainly would. For instance, a complete elimination of the state income tax on social security benefits — which Senate Republicans proposed Thursday — would cost $435 million next year but have a $960 million impact on the next biennium.

That’s why most of the discussion at the Legislature has been about using the surplus to make one-time expenditures — or at least to make to make any ongoing expenditures sound like they’re one-time expenditures.

Putting $30 million into the state disaster relief account, as Walz proposed Tuesday, is a one-time only appropriation. But what about the centerpiece of the House DFL 2020 agenda? The Great Start for All Minnesota Children Act would spend $190 million for early education scholarships; $190 million to reduce waiting lists for child care assistance; and $22 million to help child care centers increase pay for staff and other programs. The source of the money to pay for it: the surplus. 

But is the House’s DFL leadership really intending to provide more early learning slots, more child care space and more pay for child care staff — and then yank it all away when the current budget period ends, on July 1, 2021?

Even if the increased spending can’t be continued in future budgets, the one-time boosts will help a class of kids who will carry that advantage throughout their schooling, says House Speaker Melissa Hortman. Or as she often says about the proposals: “You’re only three once.” 

Yet when pressed, Hortman acknowledges that the goal is to keep those programs funded into the future. “While we’re looking for ways where one-time money can go in and make a difference, there are elements of this plan where it would require an on-going commitment,” the Brooklyn Park DFLer said. “We’re not going to increase a pay rate and then cut it later.”

Tax cuts can have an impact on future budgets as well. Senate tax committee chair Sen. Roger Chamberlain, a Republican from Lino Lakes, was asked whether the GOP’s plan would put the state into a deficit in the next biennium.

“Numbers sing and dance. We can make them work any way we want,” he said.

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Neither chamber appears ready to accept the other’s priorities, however. And even if they did, Walz might prove to be a barrier. Said his Commissioner of Management and Budget Myron Frans: “Using one-time surplus money to pay for ongoing tax cuts would be unsustainable for our budgetary balance in the out years and would likely prevent restoring the rainy-day fund.”

What’s been proposed

On the spending side, in addition to the DFL’s $500 million plan for early education and childcare, there’s a push to spend $150 million in one-time solar installations and other means to reduce carbon emissions; $30 million for the disaster relief account; $30 million to build out the final mile connections for rural broadband access; an unspecified amount to help public housing authorities install fire sprinklers in high-rise apartments; and a bill to increase the general education funding formula for public schools by 1 percent in time for the 2020-2021 school year, a boost that would cost between $75 and $100 million. On Friday, a coalition of Twin Cities African-American community groups said they will ask Walz for $20 million to help them respond to the impacts of gun violence.

Also still floating around the Legislature: a plan to increase the pool of money available to make schools safer, and a $50 million appropriation to refill a loan program to assist farmers.

On the tax cut side is a proposal by Republicans who control the state called “Get Your Billion Back, Minnesota.” It would eliminate taxation on all Social Security benefits; reduce the lowest income tax rate from 5.3 percent to 4.9 percent; expand the K-12 education tax credit; and make several other tax changes that would consume most of the surplus.

House Speaker Melissa Hortman
MinnPost photo by Peter Callaghan
House Speaker Melissa Hortman, center: “We think the most important thing is to get kids off to the right start.”
Meanwhile, House GOP leaders have a bill that would eliminate the Health Care Provider Tax, the renewal of which was the centerpiece to last May’s bipartisan budget deal. That’s worth around $600 million a year.

While the surplus is currently listed as $1.33 billion, that could change when the state Office of Management and Budget releases an updated revenue and spending forecast on February 27. Legislative budget and tax chairs are guessing that it won’t reduce the surplus and might increase it, which would only increase the pressure to spend the money.

Both House DFLers and Senate Republicans have cast their proposals not just as numbers in a budget but moves that will help real people.

“We think the most important thing is to get kids off to the right start,” Hortman said before the session began. 

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Added DFL House Majority Leader Ryan Winkler: “We have worked to end destructive Republican budgets that have shortchanged Minnesotans on behalf of the wealthy, corporations and insurance companies.”

In setting out the parameters of a tax bill, Sen. Roger Chamberlain, R-Lino Lakes, said: “This is fundamentally about people, it’s not just about numbers — it’s about real people, real lives and what they do with it.”

Even Walz, while trying to tamp down spending desires, tried not to sound opposed to the DFL legislator’s spending priorities. “I’ve said this often, budget documents are more than fiscal documents, they’re moral documents,” Walz said. “This is an opportunity for folks to talk about what they value. I think at this time this is all worthy conversation.”

‘We can’t do everything’

While caucus leaders at the Capitol have are the ones who announce broad plans, the work of delivering on those pronouncements is handed over to the chairs of the two spending committees, House Ways and Means Committee Chair Lyndon Carlson, DFL-Crystal, and Senate Finance Committee Chair Julie Rosen, R-Vernon Center.

Once the forecast is released on Feb. 27, Carlson will start drafting a budget resolution; Rosen will do likewise. On Thursday, both tried to sound open to spending and tax cuts, but also to create realistic expectations.

“We had a budget bill last year, and a significant one,” Rosen said. “So any requests from agencies, they’re gonna have to really explain why they need that, have some accountability measures in place, show where they are saving money. We need to rein in some spending.”

Sen. Roger Chamberlain, Senate Majority Leader Paul Gazelka, and Sen. Paul Anderson speaking on Thursday about the budget surplus.
MinnPost photo by Peter Callaghan
Sen. Roger Chamberlain, Senate Majority Leader Paul Gazelka, and Sen. Paul Anderson speaking on Thursday about the budget surplus.
She cited disaster relief, the farm loan program and school safety as areas where one-time money could flow, even if she also said she’s already worried about the next budget.

“But on the whole, there’s nothing wrong with sitting back and saying if you want to spend more money you’d better show me a good reason why.” she said. 

Carlson said there is some capacity in the current forecast to add up to $255 million in on-going spending, but he also said the GOP tax proposal would put the state into a deficit next budget. He has been meeting with the chairs of the Ways and Means subcommittees to hear what spending requests might be coming in.

“I’m a former teacher of economics; you talk about wants and needs,” Carlson said. “We’ll begin to build the budget from there once we know what’s available.

“Requests are always much greater than the ability to cover them will be,” he said. “The reality might be that they have to be scaled back or they may have to be put on the waitlist for the next biennium. I’m not gonna say anything is dead in the water yet, but I watch the bill introductions and I know we can’t do everything that’s being requested.”