Minnesota Democrats are putting together a new two-year state budget that includes an unprecedented growth in spending as well as increased taxes and fees to fund new services and programs for the long term.
Democratic-Farmer-Labor Party members, in full control of state government and led by Gov. Tim Walz, say their budget blueprint is a progressive vision akin to the 50-year-old “Minnesota Miracle.” It includes tax rebates and credits that will help cut child poverty by 25 percent as well as new money to lift up struggling residents and secure a prosperous future, DFLers argue.
State spending was already set to grow by almost $2.5 billion if lawmakers changed nothing. Democrats say the roughly $17.5 billion in new money for things like education, health care, transportation and other government programs is long overdue.
While part of that new spending is one-time, DFLers also are poised to raise new taxes and fees to cover ongoing costs. Some of the new revenue comes from wealthy residents and corporations, but there also are billions more in payroll taxes and sales taxes as well as increased fees.
“It is time for us to really invest in Minnesota,” House Speaker Melissa Hortman, DFL-Brooklyn Park, said following the governor’s State of the State address last week. “To take responsibility not only for these days and the times we are living in now, but to invest in the kind of Minnesota we want into the future.”
GOP opposition
Minnesota Republicans stand in opposition to most of Democrats’ ideas, but with little recourse because they are in the minority in both chambers of the Legislature.
They’ve pushed for much more of the state’s $17.5 billion budget surplus to be returned to taxpayers through rebates and permanent rate cuts. They’ve also urged modest new state spending on things like schools, public safety, and road and bridge repairs.
“One way government can make our lives easier is to reduce taxes,” House Minority Leader Lisa Demuth, R-Cold Spring, said in reaction to Walz’s speech and Democrats’ plans. “So Minnesotans would be able to keep more of the money they are earning and spend it in the way they see best for their family.”
Budget bills
Announced in late March, the DFL’s agreed-upon spending targets are divided over dozens of different committee jurisdictions in the Minnesota House and Senate. Both chambers started passing their versions of the spending bills in early April.
Any differences between the House and Senate plans will have to be settled by conference committees of select lawmakers from each chamber.
Here’s a look at where some of the biggest and most consequential budget bills stand:
Education: Lawmakers plan more than $2.2 billion in new money for public schools, including big increases in the per-pupil funding formula as well as tying future per-student funding to inflation. Funding bills also put new money into reading, mental health services and covering more of districts’ special-education costs.
School leaders have cheered the new spending while also raising concerns that the added money comes with new mandates.
Earlier this year, lawmakers approved nearly $400 million so every student could have breakfast and lunch at no cost, starting in the fall.
Health and human services: DFLers have proposed more than $2 billion in new spending on social programs that help lower-income residents, including more money for welfare assistance, expanding access to government health care programs and broader supports for residents struggling with mental illness and homelessness.
Democrats’ plans also include shifting $622 million in medical assistance expenses to be paid by the Health Care Access Fund that raises revenue through a tax on medical providers and services.
In addition to expanded social programs, Democrats plan to create a new universal paid-leave program and would require employers to provide employees with earned sick and safe time. Business advocates have raised major concerns about those programs, saying the $1.4 billion in annual new payroll taxes required to support the universal leave program is an unnecessary burden.
Children and families: When he rolled out his budget plans in January, Walz said he wanted to make Minnesota the best place to raise a family. To that end, Democrats are planning more than $1.1 billion in new money to support children and families.
It includes new tax credits for lower- and middle-income families as well as increased child care assistance and money to train and retain child care workers. There’s also new spending on preschool programs.
Public safety: Democrats’ budget targets include about $880 million more in funding for public safety and the judiciary. It includes more money for the state Bureau of Criminal Apprehension and for communities to hire and retain police.
There’s also new spending for crime prevention, including interventions for troubled youth and community groups as well as more resources to help crime victims.
Republicans have said the policy changes that come with the new money will be soft on crime and let offenders out of jail early.
Infrastructure: Unable to win the Republican votes needed for a super-majority to pass bills to borrow money for infrastructure projects, DFLers have set aside $2.3 billion for capital projects around the state.
Typically, a so-called bonding bill is used to fund road and bridge improvements, fixes to water treatment and maintenance of state-owned buildings.
Walz is also pushing for $240 million to replace lead water pipes across the state.
Senate President Bobby Joe Champion, DFL-Minneapolis, said he was excited about the prospects of the next state budget.
“In the coming weeks, we are going to deliver a balanced budget that really reflects our values,” Champion said. “It’s going to help families’ budgets, but it is also going to improve the lives of Minnesotans and communities across the state.”
Senate Minority Leader Mark Johnson, R-East Grand Forks, said the Democratic majority plans to grow state government by 30 percent, “that’s more bureaucracy, more councils, more red tape, more taxation to support that.”
Taxes and fees
Democrats’ budget plans rely on spending the state’s $17.5 billion budget surplus as well as raising new taxes and fees for revenues to cover the ongoing costs of government programs they are creating and expanding.
There’s about $3 billion worth of tax changes in the bill that House leaders detailed last week, including $1.25 billion for tax rebates worth $275 per filer, plus the same amount for up to three dependents.
Individuals earning more than $75,000 and couples with incomes above $150,000 annually won’t be eligible for the rebate checks. The tax proposal also includes a variety of tax credits and deductions for lower- and middle-income families, homeowners and renters.
There’s new exemptions for Social Security, eliminating state taxes on the benefit for seniors earning less than $78,000 or couples earning under $100,000.
In addition to those tax reductions, Democrats have proposed take hikes on corporations and the wealthy. They also want to increase sales taxes and fees to help fund infrastructure and housing priorities.
The Senate has not released their version of the tax bill, so all there is to go on right now is the House plans and those detailed by the governor. Here’s a look of what might be in the works:
Income taxes: Gov. Walz had floated the idea of increasing taxes on capital gains, but the House tax committee appears to have settled on adding a fifth income tax tier of 10.8 percent.
Income over $1 million for joint filers or $600,000 for individuals would be subject to the new tax, which is estimated to raise nearly $530 million in the next two-year budget.
The tax proposal also includes a corporate franchise tax on overseas profits that is expected to raise $452 million in the next budget and $717 million by the 2026-27 budget cycle.
Transportation taxes and fees: Democrats have earmarked $1.1 billion in new spending for road, bridge and transit projects across the state. But the House and Senate are divided over proposed new taxes and fees to raise new revenues for transportation projects long term.
The House approved a bill that would raise the sales tax in the seven-county Twin Cities metro area by 0.75 percent, which would eventually raise about $600 million per year. It would also add a 75-cent delivery fee to raise another $175,000 in annual revenue.
Senate Democrats don’t believe they have the votes to pass those increases and are proposing nixing the delivery fee and instead a lower sales tax hike of 0.5 percent.
There are also plans to increase car registration fees to raise more than $230 million for the next two-year budget.
Housing: DFLers also have promised to spend $1 billion on housing and homelessness prevention to address a growing shortage of affordable homes. The bill that recently passed the House includes a variety of financial supports for Minnesotans struggling to afford rent, new money to help first-time homebuyers and incentives to build more affordable housing.
It also includes a 0.25 percent sales tax increase for the seven-county metro that would raise about $353 million in the coming biennium for housing programs.
Paid leave: This week, House lawmakers are expected to debate creating a new universal paid family and medical leave program. It would look a lot like the state’s existing unemployment program and is projected to pay benefits to an estimated 200,000 workers once it is up and running.
To pay for it, a new 0.7 percent payroll tax will be implemented and employers could split the cost of the tax with workers. It is anticipated the program would need about $1.4 billion a year in revenue to operate.
Under the plan, workers would be eligible for 12 weeks of paid leave at a portion of their regular salary for medical ailments and 12 weeks to care for a family member or bond with a new child.
