Global budget deal reached Sunday; more work needed to pass final budget

On Sunday evening after weeks of negotiations, legislative leaders and Governor Tim Walz announced a global budget deal. This deal is a compromise in many ways between their original proposals. While there are many details of the final budget to be worked out, we hope that the final budget will build shared prosperity for Minnesotans, regardless of who they are or where they live. Here’s what has been reported so far.

The final budget agreement allocates over half of the $1.1 billion projected surplus for FY 2020-21 to E-12 and higher education. As part of their agreement, policymakers will increase funding for school districts through the basic student formula by 2.0 percent in FY 2020 and another 2.0 percent in FY 2021.

We were relieved to see that policymakers agreed to not threaten affordable health care for over one million Minnesotans. The health care provider tax will continue to support funding for Medicaid and MinnesotaCare, although at a slightly lower rate (1.8 percent versus the 2.0 percent currently.)

On the other hand, Health and Human Services faces a negative $358 million general fund target. Not all of this will actually result from cuts to services that Minnesotans count on. The deal includes shifting $270 million in FY 2020-21 and $514 million in FY 2022-23 from the Health Care Access fund, and $142 million from the Premium Security Account.

Policymakers announced that their tax proposal would have a $0 target for both biennia. Leadership indicated that the final tax bill will raise money through federal conformity and use those revenues to provide an equal amount of tax cuts. Two tax cuts specified in the budget agreement are a cut to the 2nd income tax rate and further cuts to the state property tax paid by businesses. Nearly half of all Minnesotans see no benefit from the rate reduction, especially low- and middle-income households, and the largest tax cuts go to higher-income households. As policymakers agree to the details of the tax bill, expanding the Working Family Credit and Renters’ Credit should be included so that more everyday Minnesotans are included.

The final budget deal also does not include an increase to the gas tax to fund state transportation needs. Both the governor and House budget proposals included an increased gas tax to fund overdue improvements for Minnesota’s roads, but the final transportation budget will rely on existing revenues.

A troubling component of the agreement takes money from the state’s budget reserve to balance the budget in the next biennium. A robust budget reserve is a critical part of adequately preparing for the next economic downturn, and after years of sound fiscal policy to build up the reserve, the state’s budget reserve is just shy of Minnesota Management and Budget’s recommendation. In the same way a family saves to withstand an unexpected serious illness or job loss, Minnesota builds this reserve so that when a recession hits, the state can avoid drastic cuts in critical services and continue to serve Minnesotans’ needs. However, the budget agreement would withdraw $491 million in FY 2022-23, weakening the reserve.

Conference committees were expected to put together their final budget bills and leadership expressed hope they would be ready in time for a special session to be called on Thursday to pass the final budget. However, only one budget bill had passed by the time the session officially ended on Monday night, so there’s more work to do to fill out the details and pass the budget agreement into law. Stay tuned for the details as they come out.

-Clark Goldenrod