Ewald at the Capitol/January 29

Governor Walz's COVID-19 Recovery Budget

On Tuesday, Gov. Walz outlined his $52 billion budget plan, calling it "Minnesota’s COVID-19 Recovery Budget." The proposed budget emphasizes assistance to small businesses, help for working families affected by the disease or related fallout, and measures to get students caught up after a year of mostly distance learning.

Next, the governor’s budget will be broken up into individual appropriation bills that will be introduced to the legislative process. House and Senate committees will propose their own budget bills as well.

Below, highlights of the proposal are outlined by subject area.

E-12 Education

Overall, the governor recommends an additional $662 million in spending for the E12 budget, including $150 million in one-time funding—of which half is from federal funding. According to MN Management and Budget Commissioner Jim Schowalter, more than half of the proposed spending increases in the governor’s recommendations are dedicated to education. The major proposals include:

An increase to the per-pupil formula of 1% in FY22 and 2.5% in FY23. The per-pupil formula is the main funding source for school districts.
One-time appropriation to address loss revenue to declining enrollment due to the COVID-19 pandemic.
Increases in special education aid and aid for English language learners.
Simplification of school levies and reduction in local property taxes.
Continued funding for voluntary prekindergarten.
Summer program initiatives to mitigate lost learning time due to COVID-19.
Funding to support student mental health services.
Funding to expand the teaching workforce, targeted for teachers of color and American Indian teachers.

Taxes

Gov. Walz recommends generating $1.636 billion of revenue. Details of the governor’s tax plans include:

$95 million for expanding the first-tier individual income tax bracket by increasing the income threshold, which will cut taxes for more than one million households.
$50 million to expand the Working Family Credit (WFC) for over 300,000 eligible Minnesota households.
$7 million for the Angel Tax Credit.
Establishing a fifth-tier income tax rate for household incomes above $1 million (married filing jointly), $750,000 (head of household), and $500,000 (single).
1.5% tax increase on capital gains and dividend income over $500,000 up to $1 million and 4% on income over $1million for individuals, trusts, and estates.
Increasing the current corporate franchise tax rate from 9.8% to 11.25%. The increase would be effective beginning in tax year 2021.
Reducing the estate tax exclusion to $2.7 million. Small businesses and farms will still have access to the full $5 million exemption. This recommendation would be effective for estates of decedents dying after December 31, 2020.
Creating a 35% Vapor Tax and recommending taxing electronic delivery devices at 95%.
$1 per pack increase on cigarettes and moist snuff effective July 1, 2021.

Economic Development and Recovery

$50 million in funding for the Border-to-Border Broadband Development Grant program.
$50 million for a new Small Business COVID Support forgivable loan program for the cultural, entertainment, and hospitality industries.
$7.5 million for the Minnesota Investment Fund.
$7.5 million for the Job Creation Fund.
$7 million for the Angel Tax Credit to assist early-stage businesses.
$5 million for the Launch Minnesota program to accelerate the growth of our startup ecosystem and attract top entrepreneurial talent to Minnesota.
$4 million increase to the Economic Development and Housing Challenge program to develop 60 to 100 new rental housing and single-family housing opportunities throughout the state.
$3 million per year for technical assistance and equity support for nonprofit lenders and small business incubators for small businesses.
$150 million one-time investment in Redevelopment Appropriations Bonds to support rebuilding efforts for small businesses and other private property in Minneapolis and St. Paul damaged during civil unrest.

Transportation

Gov. Walz’s 2019 proposed transportation budget centered around a 20 cent per gallon gas tax increase. There is not a gas tax increase proposal in his 2021 proposed budget. Other transportation items include:

Continuing general fund dollars from auto parts sales tax and other transportation-related taxes going to transportation funding.
$2.13 million from the Trunk Highway Fund to reduce road salt use by investing in liquid deicing chemicals.
$9.8 million annual increase to the Trunk Highway Fund appropriation to invest in Data Modernization, Cyber Security, Risk Management, and Agency Technology Initiatives to further the maturity and enhanced protection of the state’s critical technology and data assets.
$350,000 to develop a long-term solution for homeless encampments along MnDOT right-of-way.

Child Care

Earlier this year, the Legislature passed a measure to temporarily bring the Child Care Assistance Program into federal compliance. In September, the state will fall out of compliance again. Gov. Walz is proposing the following changes for the Child Care Assistance Program:

Keep the state in federal compliance by basing provider reimbursement rates on the most recent market rate survey.
Raise provider reimbursement rates to the 30th percentile of the most recent market rate survey (to be federally compliant, the 25th percentile is necessary).
These changes would use $47.5 million in federal funds from the Child Care Development Fund and $12,000 from the general fund.

Higher Education

The Minnesota State Grant program is a need-based financial aid program that was established in 1969. In FY2020, $208 million in grants were awarded to around 77,500 students. Proposals for the upcoming biennium related to the State Grant Program include:

Cancellation of $5 million of available funds for the State Grant program in FY2021 due to a decline in enrollment.

Increase in the appropriation for the State Grant program by $3.15 million each year beginning in FY2022, which would maintain the current dollar amount of Living and Miscellaneous Expense allowance ($10,530).

Health and Human Services

Gov. Walz continued his emphasis on getting the COVID-19 virus under control and bringing back the economy in his Health and Human Services budget proposals:

Families participating in the Minnesota Family Investment Program (MFIP) have been disproportionately likely to suffer job loss. 32,400 families who participate in MFIP would receive a one-time payment of $750 to help them weather these difficult times.
Implement "Waiver Reimagined" for the Disability Waiver Rate System.
Reductions in spending in the Department of Human Services budget include implementation of several strategies to create budget savings proposed by the Blue Ribbon Commission, a compromise dating back to the 2019 budget deal that required $100 million in savings in the area of the budget.
The Department of Health budget includes investments aimed at keeping infants and new mothers healthy, protecting Minnesota’s clean water, and protecting the public from hazardous materials. It also includes cuts to the Fetal Alcohol Syndrome and medical education (MERC) grants.

They Said It...

"We have a good amount of reserves that you save for rainy days. And everyone acknowledges that this is a rainy-day moment. It’ll be hard, but I do believe you can do it without a tax increase." – Senate Majority Leader Paul Gazelka on Gov. Walz’s budget proposal

"The way we look at the state budget is that it’s a moral document. And we should fund the things that Minnesotans need and we should have a fair tax system where people pay their fair share." – House Speaker Melissa Hortman on Gov. Walz’s budget proposal