Governor and Legislature lay out their visions for the FY 2022-23 budget

Clark Goldenrod, Abimael Chavez-Hernandez
May 14, 2021
What do Minnesotans need to get through the continuing disruption from a pandemic and economic recession, and how do we collectively strengthen our state’s economy and communities? That’s the context as Minnesota policymakers put together the various pieces of the state budget that will set the state’s priorities for the next two-year budget cycle. 

In their FY 2022-23 budget proposals, Governor Tim Walz and the Minnesota House largely use the $1.6 billion general fund surplus projected in the February Forecast and other resources to fund new investments, with their largest investments being in education, health and human services, and public safety. Meanwhile, the Senate’s budget devotes the largest part of the surplus to $548 million in net tax reductions. That means their new investments in public services are much more constrained, and more focused in state government (for a new fund to pay off the bonds for US Bank stadium), education, commerce, and transportation.  
FY 2022-23 General Fund Budget Comparison

E-12 education 

Walz and the House both include strong investments in E-12 education in their budgets, each allocating well over $700 million in net additional funding for FY 2022-23. The Senate’s budget plan includes only $155 million more above baseline funding for E-12 education.  

The largest investments in the governor’s and House’s education budgets would increase funding for school districts through the basic student formula, the largest source of state funding to school districts. Walz proposes an increase of 1 percent in FY 2022 and 2.5 percent in FY 2023. That’s an increase of $66 per student the first year and another $166 per student in the second year. The House would increase the formula by 2 percent in both FY 2022 and FY 2023, which is an increase of about $130 per student in each year. In addition, the House’s proposal includes a yearly 0.5 percent increase in the general education formula for the FY 2024-25 biennium, and then would adjust the formula each year starting in FY 2026 for inflation to better keep up with the costs of educating students.  

The House and governor’s education budgets also include several proposals to better ensure our schools provide a quality education and supports for all students, whether they’re Black, Brown, or white. The proposals range from ensuring all students learn about Minnesota’s full cultural heritage, to additional support for advanced coursework for BIPOC students, to supports for teachers of color and Indigenous teachers.   

The Senate’s education budget proposal does not include any increase to the basic student formula, which would have real ramifications for the more than 850,000 students in public schools across the state. This would not allow schools to even keep up with inflation, let alone fully respond to the disruption to learning that has occurred as a result of the pandemic and address other long-standing areas of funding shortages, such as counselors and mental health supports. Their largest spending item in the education budget is $76 million in FY 2022-23 and $260 million in the following biennium to create “education savings accounts.” Under this program, the state would deposit money into accounts that some families could use to fund their children’s private school attendance.  

Additionally, the Senate includes a harmful discriminatory policy proposal that would exclude trans students from participating in public school sports programs that are in alignment with their gender identity. 

Health and human services 

The governor and House also take a different approach from the Senate in terms of health and human services, which covers a broad range of health care services, services for our elders and people living with disabilities, economic supports, and more. The governor proposes increasing net general fund resources for health and human services by $212 million in FY 2022-23; the House proposes an increase of $375 million. Meanwhile, the Senate proposes a very small increase of $43 million in general fund resources for health and human services; their smaller investments that would advance Minnesotans’ health and well-being instead are largely funded by payment delays and shifts from the Health Care Access Fund.  

The three proposals include several economic supports for those Minnesotans most harmed by the COVID-19 pandemic. Very low-income families participating in MFIP, the Minnesota Family Investment Program, have been disproportionately likely to suffer job loss in the pandemic but have had less access to pandemic-related economic supports. Hotel, retail, and restaurant sectors represent the primary occupations for Minnesotans participating in MFIP – sectors that have been especially hard hit by the pandemic. Both the House and governor’s proposals include a one-time economic support payment of $750 for participating families, as well as an annual cost of living adjustment in the baseline grant amount so that MFIP can better keep up with the cost of basic expenses such as diapers and rent. The Senate’s budget does not include the one-time economic support payment, but it does increase the MFIP grant through a different change in the grant formula.  

The House bill directs the state’s Department of Human Services to develop a program to expand access to affordable health insurance coverage for Minnesotans who currently are left out, including workers who don’t have affordable insurance through their employers, undocumented Minnesotans, and others who fall through the cracks. 

The additional health and human services resources in the House and governor’s proposals allow for improvements in provider reimbursement rates in the Child Care Assistance Program. Increasing provider rates helps ensure families can choose a child care provider that meet their needs. The governor’s proposal would raise provider rates to the 30th percentile of the most recent market survey, and the House proposes to raise reimbursement rates to the 50th percentile. Meanwhile, the Senate’s proposal would only meet the minimum 25th percentile of 2021 rates required to remain in federal compliance and maintain federal funding.   

The House and Senate bills both extend health care coverage to new moms through Medicaid, which currently is limited to only two months post-partum. The Senate bill extends coverage for new moms to six months, and the House would extend coverage to a full year. The House, Senate, and governor also agree to other changes to align with federal requirements, such as adjusting premiums for MinnesotaCare, which will make health care more affordable for many Minnesotans. 

Higher education 

All three budget proposals would increase funding for the state’s higher education systems and financial aid programs. The governor’s proposal would allocate $165 million in net additional general funding for FY 2022-23 biennium, the House proposal includes $120 million, and the Senate proposal only includes $45 million in net new funding.  

Higher education is another area that’s experienced great disruption during the pandemic, with serious consequences for students and schools. Strengthening affordable access to higher education is critical to building an equitable recovery. Supporting students to complete their studies will help them recover from the pandemic-driven disruption in their education, and give more Minnesotans access to the economic opportunity that additional education and training can provide.  

All three of the higher education proposals include increased funding in FY 2022-23 for the state grant program, which is Minnesota’s largest direct financial program to help low- and moderate-income students pay for college.  
At the beginning of the pandemic, the Office of Higher Education temporarily increased the living and miscellaneous expenses (LME) allowance used to calculate grant amounts, resulting in higher financial aid awards. The governor’s plan would retain these larger grant amounts, and the House proposal would increase the average grant amount further. Meanwhile, under the Senate proposal, the average financial aid award would see a small reduction.  

The House and Senate proposals also include matching grants to schools to ensure more institutions are equipped to combat student hunger, which has been exacerbated by the COVID-19 pandemic. 

The pandemic has also caused significant drops in enrollment for many of the state’s higher education systems, which has hurt school finances. All three proposals provide funding for both the University of Minnesota and Minnesota State colleges and universities. The governor’s and House’s proposals largely match up with the University of Minnesota’s request, funding over $40 million of the requested $47 million. And both the governor and House largely fund Minnesota State’s $75 million request for their campus operations. Their proposals also provide some limited support for basic student needs for all students in Minnesota’s public higher education institutions, which was part of Minnesota State’s request. Meanwhile, the Senate’s funding proposals provide $15 million to the University of Minnesota and $10 million for Minnesota State, substantially below these institutions’ requests.  

Investments in economic security 

The House, Senate, and Walz offer very different visions about whether to take the lessons of the pandemic and strengthen our system of economic supports for workers and families. In their economic development budgets, both the governor and House would increase the number of Minnesota workers and families with access to earned sick and safe leave and paid family and medical leave. These are critical policies for building a more equitable economy, and ensuring that illness doesn’t lead to financial hardship.  

The House and governor also include additional appropriations to address homelessness and to build and preserve affordable housing. Housing has long been unaffordable for too many Minnesotans, and the COVID-19 pandemic has only exacerbated this problem. The House includes $30 million in FY 2022-23 for affordable housing and homeownership initiatives in their housing budget, and the governor’s proposal includes $19 million for the biennium. Their proposals include funding for workforce housing, financial assistance for families with children who don’t have secure housing, and Minnesotans living with mental illness. The House and Senate also have proposals related to housing in their tax bills. 

Another policy to create a more equitable economy found in the House transportation budget bill would allow all Minnesotans to access driver’s licenses regardless of their immigration status. This policy would acknowledge the immigrants who call Minnesota their home and are working, learning, and living in our communities, and who so often have continued to work on the frontlines during the pandemic to keep our economy running.  

The House’s and governor’s economic development budgets also include an important policy change that would allow high school students to access unemployment benefits. This is an especially timely provision as many Minnesotans are still struggling to find work and make ends meet as a result of the COVID-induced recession.  

Because the Senate uses so much of the surplus to fund tax cuts, they do not make the same investment, and often progress in one area is funded by making cuts in another. For example, the Senate includes some resources for increasing homeownership in their budget, but those are offset by cuts to other housing programs. The Senate includes funding for a number of bridge and road improvements, many of which unfortunately are funded by diverting dollars out of the general fund, where currently they are used to fund schools, affordable child care, and more. The Senate’s proposed budget also nearly completely eliminates state funding for transit in the Twin Cities metro area. Meanwhile, the House proposal would make some small immediate investments in Twin Cities transit and would raise resources for Twin Cities and Greater Minnesota transit systems over the biennium for future investments.  

Advancing safety and racial justice 

The House’s public safety budget bill includes provisions to help keep Minnesotans, and particularly Black and Brown Minnesotans, safer in their interactions with police. These provisions are part of a larger conversation at the state level on how police can better support Minnesotans after yet another police killing of a Black man, Daunte Wright.  

Among the measures that the House proposes to advance racial justice, the House state government budget includes a specific proposal that would pave the way for ensuring that racial equity becomes an integral part of the policymaking process. Similar to the way many bills receive a fiscal note so that policymakers can understand the fiscal impact, this proposal would create a working group to develop a process for racial equity impact notes to help policymakers understand the racial justice implications of proposed legislation. 

What’s next? 

Members of the House and Senate are meeting in conference committees, as well as negotiating with the administration, to work out the differences between their various budget proposals. While these budgets primarily focus on the state’s general fund, budget negotiations also touch on the issues of how the state may use additional federal funds from the American Rescue Plan, including the $2.8 billion in fairly flexible aid to Minnesota. A key concern is whether policymakers will truly use those federal dollars to respond to meeting Minnesotans’ needs in this unique moment and use this powerful opportunity to make the kinds of transformational changes needed to address the disparities and disinvestment that the pandemic has highlighted.  

Stay tuned as we wait for global budget targets, which set the size of the budget bills, and the detailed budget legislation to ultimately come together. May 17 is the official deadline for policymakers to wrap up their work for the regular legislative session, but it’s likely that they will need to go into “extra innings” to put a budget together this year. Check back on our blog for the latest.