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Walz’s budget: more support for those hit hardest by pandemic; more taxes on the wealthiest Minnesotans

State Senate Majority Leader Paul Gazelka said tax increases are a non-starter with Senate Republicans, however, calling it “a line in the sand.”

Gov. Tim Walz stuck to larger themes, not math, in rolling out what he termed “Minnesota’s COVID-19 Recovery Budget” on Tuesday.
Gov. Tim Walz stuck to larger themes, not math, in rolling out what he termed “Minnesota’s COVID-19 Recovery Budget” on Tuesday.
MinnPost photo by Peter Callaghan

Given the timing of this year’s rollout of Gov. Tim Walz’s budget plan, it’s probably best to think about it in terms of concepts rather than numbers.

As with all Minnesota governors, Walz had to outline a budget before real spending and revenue projections were available, basing his proposal on a November forecast for the next two years  — numbers that were out of date almost immediately.

The legislators who have to actually pass the budget by June 30 have the pleasure of using the February forecast — numbers that will very likely look a lot better thanks in large measure to the impacts of the $900 billion COVID relief package that passed Congress in December. There might be more of a surplus than the $641 million shown in November (drawn down by the $217 million relief package the Legislature adopted last month); and there might be less of a projected shortfall for the next budget cycle than the $1.27 billion predicted in November. In fact, the shortfall might disappear altogether.

Lucky timing for the Legislature, less so for Walz and his Management and Budget department.

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So even though proposed spending and expected revenue has to balance in his plan, Walz stuck to larger themes, not math, in rolling out what he termed “Minnesota’s COVID-19 Recovery Budget” on Tuesday: 

It costs $52.4 billion over two-years.

It increases spending from the current budget by $1.3 billion.

It uses $1.04 billion from the state’s rainy day fund, leaving $847 million behind.

It takes $130 million from the U.S. Bank Stadium reserve, leaving $100 million behind.

It increases state taxes — on corporate income, high-earners’ income and on vaping and cigarettes — to raise $1.66 billion in revenue.

It expands the number of lower-income residents eligible to pay the lowest income tax rates, saving those Minnesotans $230 million.

It adds spending in public education for both general support and summer school, small business assistance, child care grants, tuition assistance for job changers and other social and economic supports tied to the pandemic

New tax bracket for households earning $1 million or more

Walz said his plan, which also includes a smattering of budget cuts that total $150 million, was driven by three phenomena from the past year: the cost of the state’s response to COVID-19; the negative impacts of the pandemic falling disproportionately on lower-income Minnesotans; and the recession’s lack of impact on medium and high-income tax brackets. 

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“This is a budget that reflects Minnesota’s sense that those who COVID hit the hardest we have to help,” he said. “We help our own.” 

But he said he also wants to put more money into education and workforce training. “We have an ecosystem here that’s striving. We have great talent here. We have a high quality of life. We can’t jeopardize those by cutting to the bone the very things that make a difference,” Walz said as he unveiled his plan Tuesday.

Minnesota Management and Budget
He again endorsed a paid family and medical leave insurance plan and proposed an increase in support for working families with more spending on schools and child care.

And he said he’d pay for that with what he suggested was a tax on those who have done better during the pandemic. Since his proposed fifth income tax bracket — for couples earning $1 million or more — will hit about 0.7 percent of taxpayers, Walz dubbed it “1 percent on the 1 percent.”

“We’re gonna ask those who are most fortunate and those corporations who profited over this time,” to do more, Walz said.

The governor, who spent 12 years in Congress, said he understands how budgets crafted by chief executives are received by lawmakers. “Here’s how this will work: We’ll get some hard numbers in February; we will readjust our budget slightly from those numbers, and from now until that third week week in May the Legislature will poke holes and try and say things and develop their own budget,” Walz said. “This is a good thing, Minnesota, a healthy thing.”

But just as GOP legislative leaders sent out their reactions to Walz’s budget before Walz’s Tuesday press conference, the governor gave his response to their reactions before their press conference. “I could have written the press releases that my Republican friends are putting out. This is the thing that we go through,” Walz said. “If the economy’s good, cut taxes. If the economy’s bad, cut taxes.

Minnesota Management and Budget
“Yes, I’m willing to compromise, yes, I’m willing to listen to you,” Walz said of legislative Republicans. “But I’ll tell you what I’m not going to do. I’m not gonna compromise on the safety of Minnesotans and I’m not gonna compromise on us recovering — especially for students, small businesses and those working families.”

‘A line in the sand’ for Senate Republicans

Budget rollouts trigger a flow of comments and reactions: DFL legislators and organizations that are their allies — the SEIU, Education Minnesota, Isaiah, Alliance for a Better Minnesota — support the budget plan. GOP legislators and their allies — the Minnesota Chamber of Commerce,  Americans for Prosperity — were not as enamored.

Supporters focused on the spending, opponents on the taxes.

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“While some of the governor’s recommended investments have merit, the tax increases required to support this degree of ongoing spending will knock Minnesota out of competitive rankings and threaten our economic recovery,” said Doug Loon, president of the Minnesota Chamber of Commerce. “We will continue to argue for economic recovery that doesn’t penalize private sector employers, but benefits all Minnesotans.”

“Despite what Minnesota conservatives are saying, asking hugely profitable corporations and the wealthiest Minnesotans to pay their fair share is the right thing to do and has historically benefited Minnesota,” said Joe Davis, executive director of Alliance for a Better Minnesota.

But the comments of one group of Minnesotans carry more weight than others. Because of their majority control of the state Senate, Republicans members of that chamber can block Walz’s initiatives — even if they have the support of the DFL majority in the House. They can’t, however, adopt their own ideas without getting approval from the House and Walz.

Senate Majority Leader Paul Gazelka
MinnPost photo by Peter Callaghan
Senate Majority Leader Paul Gazelka
Senate Majority Leader Paul Gazelka said no tax increases are “a line in the sand that we have drawn” and said DFL and GOP priorities “in some ways are opposites.”

Gazelka said the budget can be balanced with greater use of the rainy day fund and budget cuts of 5 percent to each state agency. “We want Minnesota to be affordable, so one of the things that we will say is we’re not going to raise taxes on anyone,” the East Gull Lake Republican said. “If you look at the budget the governor proposed, there’s a lot of taxes on a lot of people.”

Gazelka also said that the 2021 session is difficult because of COVID-19 and the mostly remote work of the Legislature. “We need to focus on the fundamentals, not some of these other things. In a session where it’s almost impossible to navigate, we’re not going to do a lot of new policy things,” Gazelka said. “Minnesotans need to get back to the life they had: kids in school, businesses running, daily lives not under the weight of this virus.”

House Minority Leader Kurt Daudt, R-Crown, said the impact of tax increases will not fall solely on the wealthy and on corporations. Vaping and cigarette taxes fall more heavily on lower income residents. And corporate tax hikes often hit residents through price increases and job losses. “There are a lot of taxes on people we need to be successful right now and those are job creators, those are corporations,” Daudt said. And the tax cut at the lowest tax bracket will be small — $136 a year on average.

“That’s a talking point, it’s not a tax cut,” he said of what he estimated was a $3 per week savings. “I don’t think you can get a cup of coffee at Caribou for $3.”

Senate Finance Committee Chair Julie Rosen, R-Vernon Center, sponsor of the bill requiring 5 percent reduction plans for agencies, said she thinks the February forecast will make it easier to balance the budget. And the $3.15 billion that is flowing to Minnesota from the federal COVID Relief law passed in December will help as well. The state and its economy could also potentially benefit from a third federal stimulus proposed by President Joe Biden.

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“I’m very excited to work with the House and negotiate with the speaker and (House Ways and Means Chair Rena Moran) and then engage the governor,” Rosen said. “We’re gonna drill down and solve this budget.”

State Sen. Julie Rosen
Gazelka wasn’t immediately supportive of paying for summer school to help make up for lost learning opportunities or for helping schools recover state revenue related to enrollment declines in public schools — estimated at 12,000 students — amid school closures and other disruptions. “The schools made the decision not to be in the classroom when science showed they could be in the classroom,” he said. “They chose — the teacher’s union and the governor — not to have the kids in the classroom … and now they’re asking us to bail them out for that.“

Walz reacted harshly to that statement Wednesday. We created a system based on the science that every civilized nation and state followed, he said. It’s a pretty cynical approach and also incredibly unpopular, which they will find out. To act like this was (schools and teachers’) choice and now you’re going to punish them and punish our children is beyond the pale.

But Daudt echoed some of what Walz said about the process of budget writing that started Tuesday. “It’s gonna make for good talking points for the governor and we’re gonna jab him on it,” he said. “This is a good starting point that will allow us to contrast our ideas for a little bit.” 

But before May, they all need to figure out a way to agree on a budget that meets the state’s needs while creating “the economic growth that will see us through this pandemic,” Daudt said. “And the only way to do it is together.”