Governor Walz’s supplemental budget proposal lays out his priorities

Last week, Governor Tim Walz released his governor’s supplemental budget proposal. The administration described the priorities for his budget as safe communities, clean drinking water, and support for children and families. In total, Walz proposed $200 million in net general fund spending increases and revenue reductions in FY 2024-25 and $27 million in FY 2026-27.

For context in understanding the budget proposal, Minnesota has a two-year state budget cycle. This means that any changes that are enacted this year are building on the two-year budget passed in the 2023 Legislative Session.

Minnesota’s budget picture improved in the February forecast compared to November; the February forecast projects a $3.7 billion general fund surplus in FY 2024-25 that contributes to a $2.2 billion positive balance at the end of FY 2026-27. One-time dollars raised in prior budget cycles continue to play a big role in funding public services. A substantial portion of the improved budget picture is relying on future revenues, which is a source of uncertainty in the forecast.

With this budget outlook in mind, Governor Walz’s supplemental budget proposal left much of the projected surplus unallocated: $3.5 billion would remain at the end of FY 2024-25 and $2.0 billion at the end of FY 2026-27.

Examples of specific policy provisions in the supplemental budget include improvements to emergency medical services and the child protection system, well replacements and nitrate testing for water, and implementation of advanced periodic payments of the Child Tax Credit.

Walz proposes key investments in advanced periodic payments of the Child Tax Credit

At the Minnesota Budget Project, we were thrilled that one of our top priorities was included in the governor’s supplemental budget: resources to implement advance periodic payments of the Child Tax Credit.

The 2023 tax bill created a new, nation-leading Child Tax Credit, which starting this year means hundreds of thousands of Minnesota families will have more cash to afford groceries, rent, diapers, and other basic needs.

The 2023 tax bill also provided an option for the Department of Revenue to create a system for Minnesotans to choose to receive some of their Child Tax Credit in advance periodic payments, instead of one lump sum after filing their Minnesota income taxes. This is an innovative policy solution to get dollars to families sooner. But there are also some potential pitfalls for families, so the details really matter in how advance periodic payments are implemented.

Walz's supplemental budget includes important provisions to:

• Protect families, who in good faith choose to receive advance periodic payments, from repayment burdens.

• Provide resources for the Department of Revenue to implement advanced payments and serve families through information, outreach, and an online portal.

We look forward to supporting and building on this proposal as the legislative session progresses.

What’s Next?

The governor’s supplemental budget proposal represents his starting point as he went into budget negotiations with the Legislature. The next step in that process happened pretty quickly, with Walz, House Speaker Melissa Hortman, and Senate Majority Leader Erin Murphy reaching agreement on budget targets on March 22.

These “global” targets determine how much is available for changes in each area of the budget and for some specific legislative actions. With an agreement for $478 million in budget changes for FY 2024-25 and $63 million for FY 2026-27, these targets anticipate funding more initiatives than are outlined in the governor’s supplemental budget. Stay tuned for a blog on the global targets!