Minnesota Gov. Tim Walz was projecting himself as something of a seer Monday in describing the deal he struck with legislative leaders on budget and taxes.
“Two weeks ago I gave a state of the state address where I was absolutely convinced that this leadership team could get together,” Walz said Monday in announcing the bipartisan agreement, which will divvy up the state surplus not only for the state’s current budget but for the two-year budget after that.
In the time since the governor made his state of the state speech, he and the leaders of the DFL House and the GOP Senate have struck deals to restore the pandemic-drained unemployment insurance system; funded bonus checks for pandemic workers; and extended a reinsurance system that helps keep health insurance rates somewhat lower for individual and small group plans.
“We laid out a plan to take off the table the things that needed to be taken off the table,” Walz said. “Then get back together and try to set a framework and then get at those things.”
But unlike those previous deals, the signed agreement announced on Monday from the Gang of Three — Walz, House Speaker Melissa Hortman and Senate Majority Leader Jeremy Miller — included few specifics, with the trio kept falling back on their assertion that this was a “framework” and that the various committee chairs would still work out the details.
And while the deal stretches out over three years, earning it the moniker of a triennial agreement, the Legislature this year can only approve a budget that runs until July 1, 2023. Standard practice is that no budget passed in one year can overspend what state economists think will be available in the following two-year budget period, something referred to as “the tails.”
The same robust economy that produced a $9.25 billion surplus for the remainder of this budget period is also projected to have more than $6 billion extra for the 24-month budget period that begins next summer. That leaves lawmakers and Walz free to pass new spending and tax cuts now that use up both the current surplus and the projected one.
Let’s break it down by budget period:
For the second year of the current 2022-2023 budget, the agreement is to spend $1.6 billion, devote $1.6 billion to tax cuts and leave $3.9 billion unspent.
For the two years after that, the agreement is to spend $2.4 billion, cut taxes by $2.4 billion and leave $4.2 billion in reserve.
Taken all together, the deal is to allocate one-third to new spending, one-third to tax cuts and one-third left unspent.
This is all in addition to what has already been passed and signed: $891 million for reinsurance; $2.7 billion for unemployment insurance; $500 million for frontline worker bonuses; and $191 million in emergency funding for Walz to spend as needed on COVID response. All of that spending comes off of the surplus except for $1.1 billion devoted to helping repay an unemployment insurance loan from the federal government.
Beneath the top numbers, the deal calls for spending $1 billion on education over the next three years $1 billion on health and human services; $450 million on public safety and the courts; $1.328 billion on all other spending areas; and a $1.4 billion construction budget.
Yet the three leaders (House Majority Leader Ryan Winkler stood in for Hortman, who is still quarantining due to a positive COVID-19 test) insisted on Monday that there were no additional orders from the leaders — despite the notation that spending for specific dollar amounts in other budget areas will be “as agreed by leaders.”
Some of that is a three-year hangover from criticism levied at Walz, Hortman and then-Senate Majority Leader Paul Gazelka, who made most of the decisions in negotiating the 2019-2020 budget. Sitting in the governor’s cabinet room, the “triumvirate” gave thumbs up or down on many of the details that committee chairs couldn’t agree to. Since then, the three leaders have said chairs and rank and file lawmakers are more empowered.
“These decisions were not made in a triumvirate behind closed doors. We had to set some parameters,” Walz said. “I think there are a lot of things that have been put out there that make it pretty clear what we’d like to see.”
At the same time, the three said there aren’t additional directions to joint bipartisan conference committees from the House and Senate.
But some of those claims test believability. In past sessions, side deals were made that were never publicized as part of the signed agreements. Walz and Miller Monday frequently referred to their pre-deal priorities being inside the Monday agreement, even though they claimed the details were up to committee chairs.
On taxes, for example, Miller said his caucus has been pushing for permanent tax relief. “We are very pleased that this agreement includes permanent, ongoing tax relief that that hard-working Minnesotans have more money in their pockets … especially at a time when Minnesotans are struggling with record rates of inflation.”
Miller acknowledged there was a dollar amount specified in the deal for ongoing tax rate cuts but gave no details. “We know that’s going to be a big part of the tax-relief package,” Miller said.
Walz said the tax cuts will include immediate cash payments. That sounded close to the rebate checks he has been pushing despite both the DFL House and the GOP Senate being cool to the idea. “Minnesotans need money back in their pockets right now,” Walz said. “It makes sense to do that.”
But he also endorsed long-term tax cuts without referencing the Senate GOP’s individual income tax rate cuts or the elimination of all taxes on Social Security, even while specifically mentioning the House DFL’s tax cuts targeted at lower-income residents, parents with children and those with student loans.
It is hard to imagine that the big three did not pencil out a tax cut agreement that will include all three priorities. But the leaders repeatedly claimed that it is up to the tax chairs in each chamber of the Legislature.
“There is a framework in place but there is still a tremendous amount of work ahead,” Miller said. “We are encouraging the conference committee members to get to work. My message to them is to focus on areas of agreement. There is not much time before the end of session.”
The deadline is midnight Sunday.
Miller did acknowledge that some form of the triumvirate might reappear. “We need to give the conference committees a little bit of time to work through the process. If they can’t make a decision, then maybe some of those decisions will be kicked up to us at some point,” Miller said.
The same lack of details afflicted other areas of the agreement. Setting aside $1 billion over three years for public education now moves to a conference committee, which will try to reconcile a $30 million Senate bill and a $3 billion-plus House bill.
And while the agreement includes dedicated amounts of money for education and health and human services, everything else — housing, higher education, environment, general government, commerce and others — were allocated $1.328 billion. But those conference committees don’t meet together. When asked how much each area will spend of a pretty specific dollar amount, the leaders demurred.
Walz and the two leaders preferred the attention to be on the fact that there was an agreement, rather than what was that agreement entailed. Walz said Hortman and Miller spent much of the session feeding their political constituencies but got together on a deal that might disappoint some of those constituencies. “What came together in a compromise serves a much broader group of constituencies,” Walz said. “It takes leaders of vision and courage.”
“It’s just a win on so many fronts,” he said.
Miller has to convince his caucus to go along with items that they disagree with passionately and “Speaker Hortman has to go back and try and herd cats and whatever she does there.”
Winkler confessed to a faulty prediction made by both him and Hortman earlier in the session: that GOP leaders think the 2022 election will bring clear majorities and it might be better to stall and wait for 2023.
“The issue here in this budget year was whether we could do work for Minnesotans and leave election-year politics aside,” Winkler said, thanking Walz for pushing for an agreement and Miller for agreeing to get a deal done.
“We would have preferred to have seen more tax relief and less spending but this is part of the compromise,” Miller said. “We feel that the targeted investments that are included will make a significant impact on Minnesotans across the state.”