After we published this blog, the House released their budget targets. For updated House figures, check out Minnesota House releases their budget targets.
Amid unprecedented resources available to invest in Minnesotans’ well-being and build a more equitable state, the House and Senate have released their supplemental budget bills.
The latest state budget forecast showed a projected
$9.3 billion general fund surplus for the current FY 2022-23 budget cycle, and a $6.3 billion structural balance in FY 2024-25. There are also $1.2 billion of state flexible ARP funds still available.
This means we have resources to tackle the ongoing health and economic effects of the pandemic and make transformational changes to build a more equitable recovery.
Governor Tim Walz outlined his priorities for those dollars in his
supplemental budget proposals released earlier this year, and now the House and Senate’s blueprints are coming into view.
The largest piece of the Minnesota House’s budget proposal in FY 2022-23 is their $1.6 billion omnibus tax bill, which includes a range of provisions including one-time rebates; expansions of tax credits for things like student loans, child care, and education expenses; larger property tax refunds; and funding to local governments. On the funding side of the budget, the House proposes the most new dollars for E-12 Education, which would get an additional $1.2 billion in FY 2022-23 and $2.1 billion in FY 2024-25. In all, the House proposes a net $4.9 billion in FY 2022-23 and $5.5 billion in FY 2024-25 in additional funding for public services.
The tax bill is the largest piece of the Senate’s budget plan as well, but it is substantially larger than the House. It would cut state revenues by $3.4 billion in FY 2022-23 and $5 billion in FY 2024-25 – taking up about 80 percent of the state’s structural surplus in that future budget cycle. The two primary components of the Senate’s tax bill are
a first bracket income tax rate cut and an untargeted expansion of the state’s
Social Security income tax exemption, both of which leave out many lower-income Minnesotans while providing the biggest tax cuts to higher-income Minnesotans.
Since the tax bill is so large, the Senate proposes much less investment in public services: their $1.4 billion in total is less than one-third the size of what the House proposes. Their proposed investments are smaller than the House in every area with the exception of Transportation. Transportation has traditionally depended on dedicated funding sources, but increasingly is competing with schools, nursing homes, affordable housing, and other public services for general fund resources. Much of the general funds in the Senate transportation proposal are transferred to another fund in order to earn a federal funding match.
Supplemental Budget Legislation (FY 2022-23 general fund impact)
| |
House |
Senate |
| E-12 Education |
$1.2 billion |
$32 million |
| Health and Human Services |
$700 million |
$262 million |
| Judiciary, Public Safety |
$340 million |
$206 billion |
| Reinsurance (already passed) |
$313 million |
| Early Childhood* |
$250 million |
* |
| Environment and Natural Resources |
$240 million |
$1.5 million |
| Housing |
$230 million |
$50 million |
| Transportation |
$225 million |
$499 million |
| Economic Development, Labor and Industry, Veterans/ Workforce and Business |
$181 million |
$200,000 |
| Higher Education |
$100 million |
$19 million |
| State Government |
$76 million |
$41 million |
| Agriculture |
$60 million |
$5.0 million |
| Climate and Energy/Energy and Utilities |
- |
$4.3 million |
| Payments to frontline workers |
$1 billion |
** |
| Total additional funding for public services |
$4.9 billion |
$1.4 billion |
| Tax reductions and aids to local governments |
$1.6 billion |
$3.4 billion |
| Unemployment Insurance Trust Fund |
$439 million |
$1 billion*** |
| Total including Tax and other changes |
$7.0 billion |
$5.9 billion |
*The House and Senate budget committees do not perfectly line up in terms of their jurisdiction. Pieces of the House’s early childhood proposal would fall under the jurisdiction of the Senate’s E-12 Education and Health and Human Services committees.
** The Senate has not moved legislation this year on frontline worker pay; last year they agreed to $250 million but have not reached agreement with the House on how to distribute those funds.
*** In their UI Trust Fund legislation, the Senate would reverse last year’s decision to use ARP dollars to fund the budget, and replace those with general fund dollars.
|
Policymakers passed the two-year state budget for the FY 2022-23 biennium last year, so any legislation this year with a fiscal impact will modify that baseline budget. Collectively, budget changes proposed this year are referred to as the supplemental budget.
Usually, an important milestone in the budgeting process each legislative session is the release of budget targets, which set the size of each omnibus budget bill, as well as the tax and bonding bills. Each legislative body sets their own targets, which describe the net changes to state general fund spending in each budget area and could also reflect revenue increases or transfers between funds.
However, this year the House and Senate did not release public targets before advancing their supplemental budget bills. Because we at the Minnesota Budget Project really appreciate a sense of order, we put together the preliminary budget targets tables in this blog to better understand the House and Senate’s priorities based on the omnibus budget proposals that have moved through committees as well as other bills with a major general fund impact.
The House and Senate also have diverging approaches to other major issues at play this session:
how to use ARP funds, Unemployment Insurance Trust Fund financing, and frontline worker payments. The
Senate has already passed Senate File 2677, which would put $408 million of the state’s general fund surplus as well as $2.3 billion in American Rescue Plan dollars into the state’s Unemployment Insurance (UI) Trust Fund. This bill provides an untargeted benefit to all employers that pay into the Trust Fund, whether they are struggling small businesses or nonprofit employers, or the most profitable multinational corporations. The bill would repeal the use of $1.2 billion of ARP funds over FY 2022-23 and FY 2024-25 to fund the budget agreed to last year, and use general state resources instead.
In contrast, the House Workforce and Business Development Committee
has passed House File 1035, which would spend about $1.1 billion of ARP and $439 million of general funds to settle the UI debt owed to the federal government and reduce the amount that employers would otherwise need to contribute to the Trust Fund. And
in House File 2900, the House has passed legislation to allocate $1 billion from the general fund to send payments of up to $1,500 to frontline workers in a number of sectors.
The longer-term impact
The House and Senate’s budget and tax priorities have fiscal implications for the future. In the next biennium, FY 2024-25, the February forecast projects a $6.3 billion structural balance. However, when accounting for what it would take for all current public services to keep up with inflation in that biennium, that figure falls to $5.2 billion.
The table below shows the FY 2024-25 impact of the House and Senate’s proposed bills. Since neither body uses the full $9.3 billion surplus in FY 2022-23, they use some of the remainder of that surplus balance to help fund their priorities in FY 2024-25.
Since the House’s tax bill, the largest piece of their FY 2022-23 proposal, does not grow larger over time, they propose a net $5.5 billion in funding for public services in FY 2024-25. This includes a $2.1 billion investment in education and a $1.2 billion investment in Health and Human Services.
In contrast, the substantial cost of the Senate tax bill in FY 2024-25 makes clear how it would harm the state’s ability to invest in public services to improve Minnesotans’ well-being. Since the cost of their tax bill grows to $5.0 billion in FY 2024-25, their total net funding for public services in the next biennium is less than half of what the House proposes. The Senate’s largest investment item is again transportation, but their budget includes little to nothing to address key concerns like affordable housing and child care, and bringing down the cost of a college education.
Supplemental Budget Legislation (FY 2024-25 general fund impact)
| |
House |
Senate |
| E-12 Education |
$2.1 billion |
$5.2 million |
| Health and Human Services |
$1.2 billion |
$738 million |
| Judiciary, Public Safety |
$620 million |
$268 billion |
| Early Childhood* |
$600 million |
* |
| Reinsurance (already passed) |
$403 million |
| Housing |
$185 million |
$0 |
| Higher Education |
$150 million |
$24 million |
| Transportation |
$100 million |
$749 million |
| State Government |
$64 million |
$2.0 million |
| Environment and Natural Resources |
$35 million |
$980,000 |
Economic Development, Labor and Industry, Veterans/ Workforce and Business
|
$29 million |
$0 |
| Agriculture |
$15 million |
$0 |
| Climate and Energy/Energy and Utilities |
- |
$5.7 million |
| Total additional funding for public services |
$5.5 billion |
$2.2 billion |
| Tax reductions and aids to local governments |
$1.6 billion |
$5.0 billion |
| Unemployment Insurance Trust Fund |
$0 |
$550 million** |
| Total including Tax and other changes |
$7.1 billion |
$7.8 billion |
*The House and Senate budget committees do not perfectly line up in terms of their jurisdiction. Pieces of the House’s early childhood proposal would fall under the jurisdiction of the Senate’s E-12 Education and Health and Human Services committees.
** In their UI Trust Fund legislation, the Senate would reverse last year’s decision to use ARP dollars to fund the budget, and replace those with general fund dollars.
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Stay tuned to our Minnesota Budget Bites blog for more in-depth analyses of the House and Senate budget proposals.