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Governor Walz’s FY 2020-21 budget proposal makes important investments to build prosperity in Minnesota

Clark Goldenrod, Betsy Hammer, Nan Madden
Feb 19, 2019

In his release of his FY 2020-21 budget proposal today, Governor Tim Walz outlined his priorities for “One Minnesota” that would raise funds to invest in health care, child care, education, and transportation to build broader prosperity that reaches every community.

Walz proposes $2 billion in net additional general fund spending and $1.3 billion in net revenue increases in FY 2020-21. This leaves $789 million of the projected surplus unspent, or “on the bottom line.”

Governor Walz FY 2020-21 Budget Proposal – Net General Fund Impact
E-12 Education $733 million
Health and Human Services $284 million
Public Safety and Judiciary $233 million
Jobs, Economic Development, Housing, Commerce $213 million
Higher Education $158 million
State Government and Veterans $112 million
Property Tax Aids and Credits $77 million
Transportation $77 million
Environment $38 million
Agriculture $8.9 million
Debt Service, Capitol Projects, Other $85 million
New Revenues $1.3 billion

 

The state’s budget can be a powerful tool to advance racial equity and make opportunities available to every Minnesotan, regardless of who they are or where they live. Not everyone in Minnesota is succeeding in today’s economy. In particular, we know that communities of color often face barriers to economic security, from the lack of public investment in schools or transportation options in their communities, to discrimination in the labor market.

We’ll be looking more closely at the governor’s budget proposal in the coming days, but today touch on some of the pieces that most caught our attention, including initiatives that we think help make Minnesota a place where everyone can thrive.

Taxes

The governor’s tax plan seeks to raise the sustainable revenues needed to build broader prosperity and make tax policy choices that strengthen families and communities.

One of the important tasks for Minnesota policymakers this year is to update Minnesota’s tax code in the wake of the 2017 federal tax bill, which unfortunately provided the largest tax cuts to profitable corporations and high-income people. Walz’s tax conformity proposal takes another approach. For individuals and families, his proposal would update Minnesota’s tax code in ways that maintain many of the deductions and exemptions that were available before the federal tax law’s changes. It also conforms to most federal changes for corporations and businesses. Some of these provisions raise taxes and some cut taxes; in total, tax conformity for businesses raises state revenues.

Walz’s tax proposal also prioritizes working people and their families by expanding the state’s Working Family Credit, a state tax credit that boosts incomes and gets children off to a stronger start. The governor makes the case that an additional reason to expand the Working Family Credit this year is to offset the impact of the gas tax increase on these Minnesotans. The budget would expand the Working Family Credit by about $50 million a year through two policy changes:

  • Providing an expanded tax credit for families with three or more children; 46,700 families would benefit by an average of $227; and
  • Increasing the Working Family Credit by $100 for households headed by a single person and $200 for households headed by a married couple.

Walz’s budget plan also would reverse three tax cuts passed in 2017 that over time have taken a bigger and bigger bite out of state revenues. His proposal would reinstate inflation adjustments for tobacco taxes and the statewide property tax paid by businesses, and freeze the exemption amount for the estate tax at current levels (rather than allowing it to rise further.)

The proposal would increase state aids to cities and counties by about $60 million a year; this would support services in local communities and reduce reliance on local property taxes.

And Walz’s plan would treat homeowners equitably by allowing immigrants who own their homes to gain homestead status. Currently, some Minnesota homeowners pay higher property taxes simply because they file their taxes with an Individual Taxpayer Identification Number (ITIN) instead of a Social Security number.

Health care

The governor’s proposed budget includes many important investments to help Minnesotans stay healthy and afford quality health care.

The health care provider tax is an important source of funding for affordable health care for over one million Minnesotans. However, the provider tax is set to sunset later this year. The governor’s budget proposal repeals the sunset, ensuring that the Minnesotans receiving coverage through Medicaid and MinnesotaCare will have the care they need to stay healthy.

Minnesotans who get health insurance through MNsure would have additional assistance to make health care affordable. Walz’s proposed budget includes premium assistance to bring down the costs for Minnesotans who buy insurance in the individual marketplace, and a state premium tax credit. The governor’s proposal projects that by 2023, over 34,000 Minnesotans currently using MNsure would be able to tap the tax credits, and an additional 13,000 Minnesotans would likely enroll in health insurance using MNsure as a result.

The governor also proposed a major package, called ONEcare MN, aimed at expanding access to high-quality health care on the individual market. This proposal would roll out over several years and includes:

  • A high-quality “platinum-level” plan that offers coverage similar to MinnesotaCare.
  • Ensuring that “gold” and “silver” level health insurance plans are available in every region of the state.
  • Aligning prescription drug benefits to leverage purchasing power and make medicine more affordable.
  • Improving access to affordable dental care for people throughout the state.

Child care

In his budget, Walz proposes major investments in affordable child care that will help families afford care for their kids while parents work. Under this proposal:

  • 1,000 additional Minnesota families would receive child care assistance (CCAP), which would make a significant dent in the current waiting list.
  • Child care provider rates would better reflect market rates. Adequate provider reimbursements are key to ensuring families have choices when selecting a child care provider, and this is an important step in that direction.

Transportation

The governor’s proposal includes a substantial transportation component. Through this budget, the Department of Transportation expects to address snow and ice maintenance on the roads, repair potholes, inspect and maintain our state’s bridges, and build a safer transportation system. Transit investments include funding for Metro Mobility services, which serve elderly Minnesotans and Minnesotans living with disabilities, as well as for increasing bus rapid transit lines.

Walz proposes a few funding mechanisms for his proposal, the largest of which is increasing the gas tax. Walz proposes raising the tax by 20 cents, and then indexing it to inflation so that it can keep up with the state’s transportation needs. This tax increase also makes it possible for the governor to return certain funding sources that are currently being diverted to transportation back into the General Fund, where they can be used for investments like quality education and health care.

Education

The governor proposes $733 million in additional funding for education. He proposes increasing funding for school districts through the basic student formula by 3.0 percent in FY 2020 and 2.0 percent in FY 2021. That’s an increase of $189 per student the first year and another $130 the second year.

In higher education, he proposes to make college more affordable through an additional $54 million in FY 2020-21 for financial aid through the State Grant Program. As part of this, he includes an important improvement to financial aid. Minnesota Dreamers – young people who came to the country as children and do not have legal status – are ineligible to receive federal Pell Grants. However, the State Grant formula currently calculates financial aid assuming students receive this federal grant, meaning that Dreamers receive much less aid than they need to afford college. The proposal would increase the grant award for these students, making college education more in reach for all of Minnesota’s young people.

The big takeaways

The positive balances projected in the state’s recent forecast present some opportunity for policymakers to build toward shared prosperity. But it’s also clear that the smaller future projected surpluses aren’t enough to make the investments Minnesota needs in its people and communities. Walz’s budget proposes responsible policies to both build prosperity for Minnesotans today and provide stability for Minnesotans in the future.

Stay tuned for our upcoming in-depth dives into some of the governor’s proposals. In the meantime, you can download the governor’s budget materials at Minnesota Management and Budget’s website.

-Clark Goldenrod, Betsy Hammer, Nan Madden