Gov. Tim Walz is proposing a $52.4 billion two-year budget, with a focus on helping families and small businesses impacted by the COVID-19 pandemic and ensuring students catch up on learning, while also raising taxes on the wealthiest Minnesotans and some businesses to pay for such programs.
Walz during a news conference Tuesday said his "COVID-19 recovery budget" is "more than a fiscal document. It is a moral document." The governor stressed that the COVID-19 pandemic hasn't impacted everyone equally and the budget aims to help those who were hardest hit.
“Minnesotans have met the challenges of COVID-19 pandemic as they always do when faced with hardship – with grit and resiliency," Gov. Walz said in a statement.
"Now, as we look toward the future, Minnesotans are ready to confront the challenges we face today while investing in a brighter future. That’s why I am proposing Minnesota’s COVID-19 Recovery Budget to ensure we emerge from this crisis stronger than before.
“Not every Minnesotan was impacted by the COVID-19 pandemic equally. We know the COVID-19 pandemic hit our working families, small businesses, and students particularly hard. They need our help,” Walz added. “The budget I am unveiling today will make significant strides in helping those Minnesotans stay afloat.”
The State of Minnesota is projected to face a $1.28 billion deficit for the two-year budget that begins July 1, but state leaders are confident the picture will improve when another budget forecast is released in February. Additional federal aid could also improve the state's outlook.
The largest portion of the governor's budget relates to education, with Walz calling for new investment of $745 million to tackle challenges he outlined Monday in his Due North education plan, which is focused on eliminating disparities in e-12 education.
Walz wants to expand summer 2021 programming, including mental health supports and field trips/hands-on learning options; increase funding to schools; increase mental health personnel; establish a statewide teacher mentor program; increase access to affordable child care; and expand educational opportunities, including expanding Indigenous education for all.
Walz's budget calls for investing $50 million in a new Small Business COVID Support forgivable loan program to help cultural, entertainment and hospitality businesses hardest hit by the pandemic.
He's proposing investing $3 million per year in new supports (outreach and technical assistance, equity support, etc.) for small businesses that have been hit by the pandemic and leveraging federal dollars by investing $1 million in the state's network of Small Business Development Centers, which helps support entrepreneurs and small businesses across Minnesota.
Walz wants to allocate $7 million for the Angel Tax Credit to help assist start-up businesses and investing $5 million in the Launch Minnesota to accelerate the growth of the state's startup ecosystem and attract top entrepreneurial talent to Minnesota.
In an effort to help the future workforce, Walz is proposing a $1.3 million increased investment in Emergency Assistance grants to help students facing hardships related to food and housing, which threaten their ability to stay in school, among other programs.
Walz is proposing expanding the Working Family Tax Credit for more than 300,000 eligible households in Minnesota. He's also proposing a statewide program the provides 12 weeks of paid leave for people with a serious medical condition, to use to care for a loved one or to bond with a new child.
Another budget proposal that's aimed at helping working families is a one-time Minnesota Family Investment Program payment of up to $750 to support about 32,400 Minnesota families, including 64,000 children.
Walz on Tuesday stressed the importance of high-speed internet access for Minnesotans – a need that's grown since the start of the pandemic as people work and learn from home. To address this, Walz proposes investing $50 million to increase access to reliable, high-speed broadband across the state.
Rebuilding Minneapolis and St. Paul
The governor's budget includes a $150 million investment in Redevelopment Appropriations Bonds to help in rebuilding efforts for small businesses and other private property in Minneapolis and St. Paul that were damaged during the riots following the killing of George Floyd by Minneapolis police on May 25, 2020.
This will likely be a non-starter among Republicans who have been critical of Minneapolis' response to the riots and efforts to revamp the police department.
Balancing the budget with taxes
In order to balance the budget and pay for the new programs proposed in Walz's COVID recovery plan, the governor proposes generating $1.64 billion in revenue during the 2022-2023 biennium.
To do this, Walz proposes establishing a fifth-tier income tax rate for household incomes above $1 million and increasing the corporate tax rate for large, profitable companies from 9.8% to 11.25%.
Walz also recommends taxing foreign income and imposing a 4% tax on capital gains over $1 million for individuals, trusts and estates. As well as increasing taxes on tobacco products by increasing the cigarette tax and moist snuff tax, while establishing a vapor tax.
"This additional revenue will help level the playing field and ensure all Minnesotans have a fair shot at economic recovery," a news release says.
Walz recommends expanding the first-tier individual income tax bracket, cutting taxes for more than 1 million households in the state, costing the state $95 million.
Raising taxes will be a sticking point with Republicans. Instead, GOP leaders have suggested a little less spending and dipping into the state's rainy day fund to balance the budget.
"We need to grow our way out of this recession; unfortunately this budget would devastate job growth and hamper our economic recovery by taking money out of the economy to protect government budgets. Putting Minnesota into the top 3 for income and business tax rates without asking government to share in the sacrifice would be a disaster but fortunately has no chance of becoming law this year," House Minority Leader Kurt Daudt, R-Crown, said in a statement Tuesday calling the tobacco taxes regressive and criticizing the tax hikes for businesses and the state's rich.
"Minnesotans should know that Republicans have their back — we are going to ask state government to tighten its belt, do more with less, and balance our budget without tax increases that would hurt our economic recovery," he added.
There have been myriad reports that the pandemic has exacerbated the gap between the nation's wealthiest and the poorest, with America’s 614 billionaires reportedly growing their net worth by a collective $931 billion over a seven-month period starting mid-March.
The governor's budget proposal will start the months-long debate between the DFL-controlled House and Republican-controlled Senate as they work to agree on a state budget while also balancing the projected deficit before the current budget expires on June 30.
If they don't agree on a budget before the legislative session ends on May 17, they will have to return to the state Capitol for a special session to pass a budget. This has become commonplace in budget years to avert a government shutdown. In four of the past five budget years, a special session was required to pass budget bills.