When Gov. Tim Walz finished rolling out his plans to spend the state’s record-setting revenue surplus this week, he answered one big question: How much of Minnesota’s $7.75 billion surplus would he ask the Legislature to spend?
Nearly all of it.
After unveiling plans for health care, public safety, climate change, housing, economic development, education, child care and social services, the DFL governor produced a spreadsheet that totaled up the proposals for new spending. The cost: $7.58 billion.
All this on top of the two-year budget passed last summer that will spend $52 billion, with nearly half already expended by the time any supplemental budget is passed and signed this spring.
In addition, Walz proposes to spend the remaining $1.1 billion in money sent to the state from the federal American Rescue Plan on bonuses for frontline workers who could not work remotely during the opening months of the pandemic. And he wants to sell bonds to cover $2.7 billion in construction projects.
“This was a budget written by the state of Minnesota, it was written by stakeholders,” Walz said.
Some of what’s in the plan is considered one-time expenditures: $700 million in one-time rebates to taxpayers, and $2.7 billion to refill the state unemployment trust fund and repay the feds for the money it borrowed to cover UI benefits after the fund had been drained.
But a lot of the Walz spending would be embedded into the state operating budget, obligating the state to spend more in the future to keep those programs in place.
In fact, Walz’s plan would not only spend down the current surplus, but the new spending would also consume the projected surplus for the next two-year budget period, which won’t begin until July 1, 2023, with carry-forward costs estimated to total $5.69 billion. The surplus projected for that upcoming 24-month budget is $5.95 billion.
‘Not constrained’ budgeting
Walz has the obligation (and the burden) of having to go first — and be specific — when it comes to presenting a supplemental budget proposal to the Legislature. The House DFL and the Senate GOP, meanwhile, have only spoken in generalities and talking points, with some of their proposals containing dollar amounts — and some not.
In presenting their general priorities for the session [PDF] that begins Monday, for instance, Senate GOP leaders assigned no specific dollar amounts to proposals for permanent income tax cuts and funds to recruit and retain police officers.
“We’re still working on those details,” said Senate Majority Leader Jeremy Miller, R-Winona, on Wednesday. “That will be rolled out in the next couple of weeks but you can expect a very large tax relief package.”
Earlier in the week, House Speaker Melissa Hortman said her caucus is only presenting ideas right now and doesn’t feel constrained by the size of the surplus. Numbers will come after the next forecast of revenue made by Minnesota Management and Budget in early March, and only then will various committee chairs be told how much they can spend.
Hortman said it is “really important to start with a conversation about what is really needed in each area and not from a constrained point of view,” where the individual committee chairs have to consider how much other lawmakers think is needed.
[image_credit]MinnPost photo by Peter Callaghan[/image_credit][image_caption]Senate Majority Leader Jeremy Miller stated on Wednesday that Senate Republican leaders had not yet assigned specific dollar amounts to their proposals.[/image_caption]
Walz would also increase general school funding, increase slots for pre-K, create a paid family and medical leave program, require paid sick leave, further subsidize child care, add money to help people buy health insurance, add homelessness funding, increase money for affordable housing, finance clean energy projects and help farmers struggling with impacts from last summer’s drought.
The biggest price tags are assigned to a $700 million taxpayer rebate that the governor calls “Walz Checks” and Senate Republicans termed a “campaign gimmick,” and a proposal to use $2.7 billion in surplus dollars to pay back a $1 billion loan from the federal government and to refill the state’s unemployment insurance trust fund.
[image_credit]MinnPost photo by Tom Olmscheid[/image_credit][image_caption]Commissioner James Schowalter[/image_caption]
And it was a surprise revealed in the December forecast that makes it possible. Not only did that forecast reveal the record-setting surplus for this budget, it showed that the positive numbers extend into the next budget as well.
“A four-year planning horizon is especially risky,” Schowalter said in December. “But at this point, this budget improvement continues throughout the four-year budget horizon.”
Mark Haveman, the executive director of the business-leaning Minnesota Center for Fiscal Excellence, called that “eye-catching.”
“The last five odd-year November forecasts projected either negative structural balances for the out-biennium or modest positive balances that were mostly or completely offset when factoring in inflation,” Haveman wrote this month. “These estimates functioned as a cold shower on any new tax cuts or spending plans with big tails.”
There is no need for a cold shower in 2022.
Is Walz planning on the Federal Government shelling out billions of COViD relief in 2022 and beyond? I found it hilarious that Walz and his administration touted their “economic success” of accepting Federal dollars to get a huge surplus of tax dollars. Any chance of our politicians (both parties are guilty of spending like drunken sailors) have a rainy day fund?
There’s really no point in Walz coming in with a lower proposal if he wants to get investment in any or all of these priorities. We (and he) know already that the Senate GOP will want little to no spending on most if not all of his priorities (they want tax cuts above all, maybe some things for public safety, mostly if it includes locking more people up). Why on earth should he start at the middle before negotiations start? Walz isn’t a fool and isn’t going to give away some of his negotiating position before things even start.
The sad thing in this is that the Walz-Flanigan plan is definitely moving Minnesota forward, forward to huge spending increases that even far surpass the crazy Biden inflation. When does the madness end? How much money does the state need to have? At some point, the revenues dry up. And it’s proven now more than ever that the Dayton-DFL record tax increase was never needed.
Actually it proves Dayton was correct with his “tax the rich” slogan. No matter how the overall economy does the rich always do well. You can count on rich people to make money. Taxing the rich has stabilized the budget after Pawlenty’s fiscal mismanagement.
It is also relevant that you mentioned inflation. State budgets account for inflation on the income side and then purposely ignore it on the expenditures side. That is part of the reason the “surplus” is so large. I don’t know why you would expect spending to go down during an inflationary period.
Where are the fiscal conservative Democrats?
I exist. Perhaps alone, but I’m pretty sure I exist!…
HA! Good for you. Not an easy place to be.
There are a few, but like the moderate republicans they do not have a seat at the table. All that’s left is the democrats who want to spend and the republicans who want to give it back to the people who paid it.
If the tax structure was based on what we spend ( which I think it should be ) we would not be having this discussion.
I’m sick of it, I come back here for the summer, but I changed my residency to FLorida. Which a whole lot of people with money did and still do.
I understand negotiations. I was delighted this article was clear that it was not budget neutral- that is a great step forward for journalists to note this in state and federal budgets. It is also critical to note this with tax cuts that are not budget neutral and they, too, must have income or spending cuts to balance them out. The classic was 45’s big tax cut with no spending cuts. In MN our sales tax revenues do not include the basic steady revenue from clothes and food so revenues fluctuate. I would like to see surplus spent on one time things like infrastructure not long term tax cuts (aka spending) or more spending directly without revenue to fund them or a rainy day fund. I was delighted to see this reporter include long term cost or a balanced approach. We need more common sense coverage like this. Thank you.
I’m inclined toward Jerry Ratliff’s view, and I’m not enthused about adding long-term spending that’s not paid for. One-time costs, however, when you have a multi-billion dollar surplus, don’t strike me as extreme at all. There are always far more needs and demands in a state budget than even a big surplus can fund, so now comes what Dick Lamm used to refer to as “hard choices in public policy.” Every spending proposal, whether Mr. Gotzman likes it or not, has a constituency, and Mr. Peterson seems to be under the very mistaken impression that the President controls the rate of inflation. He does not. Government costs go up because there are more people to serve and/or the private sector is charging more than it used to for the same goods and services. Sometimes, government action has an effect on that, sometimes not.
If this was all easy to solve, it would have been solved long ago. The fact that citizens and lawmakers are arguing about economics after centuries in which to solve the various issues involved suggests (to me, at least) that there is no “simple,” “Do ‘x’ and it all solves itself” solution. That all being said, I’m not especially bothered by one-time capital expenditures when we have a pot of unexpected money with which to work, so that projects can be funded without raising my taxes. I’m more concerned about long-term expenses that go beyond the next budget horizon. It’s true, I think, that, once a program is in place, people fight tooth and nail to keep it, so it’s best to be careful about introducing new initiatives unless there’s a substantial degree of certainty that whatever it is can still be paid for in a decade, barring catastrophe over which we have no control.
And those catastrophes happen occasionally, which is why we have a “rainy day fund.” It’s better, I think, if we don’t have to use that rainy day fund to finance a government program that sizable numbers of people depend on. Overall, in addition to Ratliff’s view, I also think Dan Landherr’s first paragraph makes an excellent point. Jeff Bezos hasn’t had to change his lifestyle because of inflation, or Bill Gates, or the Walton family.
As A former Legislator, I want to add this.
I fully support Gov Walz and everything he has done the last 3.5 years. I understand the reason for his very aggressive budgeting with this huge surplus. However I would recommend he consider these two alternatives.
I think $1–2 billion should go into a rainy day fund. Nationally and in our state we have had remarkable, unanticipated economic growth coming out of the pandemic. That will taper off over the next 6-12 months and revenue will decline, maybe substantially. Let’s be prepared for that with a very big rainy day fund.
Secondly we have a racial disparities problem in this State as well as a problem of racial relations. It seems to me that these two areas would be great areas to make some one-time-only spending. Why not take a billion dollars and build 15-20 new schools in the most racially diverse areas in our State. Think of the pride and motivation that minority kids would feel in having new schools to go to and how appreciative their parents would be if something like this was done. Or maybe smaller neighborhood health clinics, or some combination of the two.
And do it explicitly and very publicly for the goal of improving race relations and disparities.
A couple weeks ago MINNPOst had an article on the Page Amendment and there was a lot of reader reaction to it. Wouldn’t a proposal similar to what I suggest go along ways to addressing what the Page Amendment seeks to force the Legislature to do?
What about eliminating tax on Social Security completely? With an income cap? For being a “progressive” state, we are one of 13 that still taxes it. Not even California, our governors wanna be state, taxes it. Same with military pensions.
This is one of the proposals the Rep are floating.