Budget season in Minnesota — now under divided political leadership — kicked into high gear with Gov. Tim Walz’s release of a $49.5 billion two-year budget that would dole out more funds for education, transportation, and borrowing by tapping the budget surplus and raising the gasoline and other taxes.
On Tuesday, a week after he unveiled the budget, Walz will roll out his plans for a $1.27 billion bonding package for transportation, housing, higher education, corrections, and state building projects.
The release at the end of the week of the annual February revenue forecast will set the stage for the House and Senate to craft their own versions of a budget with a targeted date in late May to reach a final deal.
“I am proud to unveil a budget that makes smart choices to invest in the future while maintaining a fair and balanced budget,” Walz said. The document highlights the state’s triple-A ratings from Fitch Ratings and S&P Global Ratings, and its $2.45 billion rainy day fund. Moody’s Investors Service rates the state’s more than $6 billion of general obligation bonds at Aa1.
Walz, who won the office in November contest, is a Democrat-Farmer-Labor Party member and the House is his fellow DFLers won control of the House in November. The Senate was not up for election in November, and Republicans who hold a narrow majority have already pushed back on proposed spending levels and Walz’s proposal to raise the gasoline tax by 20 cents per gallon.
The operating budget that covers the biennium beginning July 1 represents an 8.6% increase over the current spending plan. The budget would provide $20.3 billion for primary and high school education, up by more than $700 million, and $3.4 billion for higher public education, up by $158 million. It would also spend $300 million for higher education capital projects.
The budget banks on phasing in over two years the gas tax increase, then indexing it to inflation. The plan also raises motor vehicle and registration fees.
All combined, the measures are estimated to generate $11 billion over a 10-year period to raise transportation funding and also ease the burden on the general fund. The increased revenue would allow the state to borrow $2 billion in general obligation-backed trunk highway bonds between 2022 and 2030.
The budget also relies on a one/eighth cent sales tax increase in the Twin Cities region to raise $770 million over the next decade for transit.
“We want to protect the general fund,” said Minnesota Management and Budget Commissioner Myron Frans, a holdover from the prior administration of Mark Dayton, who did not see re-election. Lawmakers previously stripped about $460 million of sales taxes from the general fund transferring those funds to the transportation fund.
“We want dedicated revenues” to pay for “for roads, bridges, and transit,” Frans said.
“This uncontrolled spending will give Minnesota the reputation of being ‘cold California’ and if we’re not careful we will move to the position of number one taxed state in the union which is not something that I will allow,” said Senate Majority Leader Paul Gazelka, R-Nisswa.
Republicans also want a more modest capital package, known as the bonding bill, as traditionally just a small package is approved in odd years along with the operating budget and a larger one is the focal point of the even-year legislative session.
Democrats mostly offered praise and said the gasoline tax proposal offered just a starting point for negotiations.
Frans said the budget still leaves portions of a budget surplus on the table including $789 million in the first year of the budget and $521 million in the second. “We have to leave some money on the bottom line….because we are concerned about the forecast,” he said.
The budget earmarks $70 million to expand high-speed broadband across the state, and provides $170 million mostly from bonding for affordable housing. Paid family leave and expanded child care assistance carry a price tag of about $112 million and local government and county aid would rise by $30 million annually.
In addition to the transportation taxes, the budget makes state tax code changes to conform with federal changes and has other changes that would raise about $764 million. The budget also extends a 2% medical provider tax that otherwise would end this year generating $992 million.
The annual November forecast estimated a $1.5 surplus was in play for the new budget.
