CHICAGO — Minnesota Gov. Mark Dayton unveiled a two-year, $64 billion spending plan that relies heavily on income tax increases to overcome a $6.2 billion shortfall.
Dayton’s budget, unveiled Tuesday, includes a $37 billion general fund budget that would increase spending on K-12 education and public safety and would assume $4.1 billion of new revenue, largely from tax increases.
The operating budget proposal is separate from a $1 billion bonding capital budget Dayton proposed two weeks ago.
The state typically releases the two budgets on opposite years, but Dayton, a Democrat who took office last month, has touted the capital bill as a way to spark economic development while improving infrastructure. He has asked lawmakers to pass the two spending measures together.
Lawmakers plan to spend the next six weeks debating the spending measures and must adjourn by May 23.
“We cannot delay a resolution to these problems,” Jim Schowalter, head of the Minnesota Management and Budget Office, said at a press conference. “The revenues lost during the recession are permanently gone, and we have increased needs.”
The $37 billion general fund budget proposal would eliminate most of the state’s structural deficit by raising taxes and imposing other fees and cutting $950 million of spending. It would assume $2.4 billion of new revenue from permanent income-tax increases and $918 million from a temporary income-tax hike on residents who earn over $500,000. A surcharge on health care providers would raise another $877 million.
The budget would cut higher education and health and human services. It also would save money by postponing a plan to begin repaying $1 billion of school aid that was frozen as part of the current budget.
State aid to local governments would be maintained. Dayton said municipalities ended up passing along previous cuts to residents as property-tax hikes. The proposed income-tax increases would target the 5.5% wealthiest Minnesotans.
The increases include a new three-year tax on residents earning more than $500,000 and a new tax on single filers making $130,000 or more and couples who earn $150,000 or more.
“Our challenge was not to balance the budget for the biennium, but for the long term in a way that meets the priorities of the governor and the citizens of the state,” Schowalter said. “We needed to get to a place where the structural deficit is back in line, and the governor’s recommendations largely do that.”
Dayton exercised his first veto last week when the GOP-controlled Legislature sent him its first bill, which would have cut $901 million of state spending.
Minnesota’s $4.2 billion of GOs are rated AAA by Fitch Ratings and Standard & Poor’s and Aa1 by Moody’s Investors Service, all with stable outlooks.
