Walz’s proposed budget includes strong and fair revenues

Clark Goldenrod, Nan Madden, Betsy Hammer, Abimael Chavez-Hernandez
Jan 27, 2021

Will invest in Minnesotans’ needs now and the future

Governor Tim Walz released what he called his “COVID-19 Recovery Budget” in the context of health, economic, and state revenue crises. This budget proposal comes at a time when hundreds of thousands of Minnesotans are facing increased hardship, and there’s a greater spotlight on the barriers to well-being that pre-dated the pandemic. The impact of the recession has been unequal, with many high-income folks and some businesses doing well at the same time that people of color and low-income Minnesotans have borne the brunt of the disease and job loss. Many people are behind on rent, not getting enough to eat, and are still out of work.  

The governor’s budget makes the largest investments in education, with important steps elsewhere in the budget. He funds these investments, at the same time as largely protecting current services that Minnesotans count on and responding to a $1.3 billion budget shortfall, primarily by drawing $1 billion from the budget reserve and raising $1.6 billion in net additional revenues. 

We’ll have more details in upcoming blogs, but here’s our initial take.
Governor Walz's FY 2022-23 budget proposal       Net general fund spending changes
E-12 Education   $664 million 
Health and Human Services    $167 million 
Higher Education    $150 million 
Public Safety and Judiciary   $117 million
Jobs, Economic Development, and Commerce   $59 million
State Government and Veterans   $58 million 
Environment    $33 million 
Capital Projects and Grants  $21 million 
Agriculture and Housing    $19 million 
Transportation   $16 million 
Total  $1.3 billion


The governor proposes $664 million in additional net funding for education. He would increase funding for school districts through the basic student formula by 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 the second year.  

In addition to per-pupil funding, Walz’s proposal includes several measures intended to advance racial justice in Minnesota within the school system, 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 governor’s budget proposal also includes several measures to update the ways schools are funded, including levy simplification and equalization that is intended to better fund schools in communities with low tax bases to meet the needs of their students.  

The budget also includes several initiatives intended to make up for learning disruptions due to COVID-19, such as funding for hands-on learning and neighborhood programs slated for this summer.  

Health and Human Services 

Walz’s proposed budget includes several positive 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 COVID-19 pandemic. Hotel, retail, and restaurant sectors represent the primary occupations for Minnesotans who turn to MFIP for assistance. Under this proposal, about 32,400 families who participate in MFIP would receive a one-time payment of $750 to help them weather these difficult times. 

Walz’s proposal also includes nearly $48 million in FY 2022-23 and over $85 million in the next biennium for affordable child care. These dollars, primarily from the Child Care Development Fund with a small portion from the state’s General Fund, will be directed towards improving the provider reimbursement rates in the Child Care Assistance Program. This action is necessary to keep Minnesota in compliance with federal requirements to maintain federal funding. Additionally, it helps keep affordable child care available for Minnesota kids, parents, and employers. The proposal also includes $750,000 in one-time funding through DEED for child care economic development grants aimed at expanding the supply of child care, reduce regional shortages, and promote new business development.  

The governor’s proposal for the Department of Human Services includes implementation of several strategies to create budget savings proposed by the Blue Ribbon Commission, a compromise dating back to the 2019 budget deal that required a $100 million savings in this area of the budget. The proposal also includes administrative streamlining; efforts to address homelessness; mental health and substance abuse services; access to telemedicine; aging and disability services; licensing and background check updates; and improvements to tribal governments’ access to services. Walz’s proposal for the Minnesota Department of Health includes investments aimed at keeping infants and new mothers healthy, protecting Minnesota’s clean water, and protecting the public from hazardous materials. 

Higher Education 

The governor’s budget proposal increases funding for higher education by $150 million in FY 2022-23. Minnesota State Colleges and Universities would receive the largest share of this increase, with an additional $64 million to maintain operations, cover pandemic-related expenses, and provide additional supports for students. The University of Minnesota would receive an additional $47 million in FY 2022-23 for operating expenses, and the Office of Higher Education would receive an increase of $35 million for job training and skills-building programs targeted towards Minnesotans who lost work due to COVID-19.   

In addition, the proposal includes increased funding for financial aid for students through the state grant program. 

Economic Development and Housing 

Walz’s budget proposal would establish a paid family and medical leave insurance program that would allow Minnesotans to take up to 12 weeks of paid leave for addressing a serious medical condition, to care for a family member, or to care for a new child. According to the proposal, around 10 percent of Minnesota workers need to take a family or medical leave in any year. This program would be especially important for low-income workers and workers of color who are more likely to lose critical wages when they have to take leave to care for themselves or a family member without pay.  

The proposal also includes measures to support workers and businesses during COVID-19, including expanding eligibility for unemployment insurance for high school workers. The proposal also includes a Small Business COVID Support Program, which is a loan program for small businesses in industries that were hard hit by COVID-19.  

The COVID-19 pandemic has exposed gaps in access to broadband as many workers and students have switched to work-from-home and distance-learning. The proposed budget includes a one-time investment of $50 million in FY 2022 to improve access to broadband in unserved and underserved areas of the state.  

The budget proposal also includes measures to support Minnesotans and their families who are struggling to find housing. It includes $4 million in FY 2022-23 for Minnesotans experiencing homelessness or who are at risk of homelessness through the Family Homeless Prevention and Assistance Program and $4 million for workforce housing through the Challenge program.   

Taxes and Revenues 

The governor uses several forms of revenue in order to fund the investments in his budget, as well as respond to pandemic-caused state revenue shortfalls. Some of the larger one-time measures to balance the budget include a $217 million surplus expected at the end of the current budget cycle and $1 billion of the state’s budget reserve, sometimes called the rainy day fund. We’ve advocated for building up that budget reserve when times were good and judiciously using it to support Minnesotans to get through this economic crisis. About $850 million would be left in the budget reserve for possible later use.  

We’ve described before the real and growing gap between what the state’s current revenue system brings in and what is truly needed for all our communities to thrive. We’ve also noted how this economic downturn has been really uneven in its impact – hitting lower-income folks hard while many of those with greater resources of income and wealth have seen those assets grow further. The governor’s tax plan is also being proposed against the backdrop of a 2017 federal tax bill that provided the largest tax cuts to high-income households and corporations, which they continue to benefit from today. 

The governor’s budget proposes several revenue increases focused on those with the greatest resources, primarily through: 
  • A new millionaires income tax bracket, with a 10.85 percent rate on taxable income over $1 million for a married couple, which the administration estimates will impact less than 1 percent of the highest-income households; 
  • An additional tax on capital gains and dividend income over $500,000, in part reflecting that this source of income, which is largely earned by high-income households, is taxed at a lower rate at the federal level; 
  • Reversing recent cuts to the estate tax while maintaining current protections for smaller family-owned farms and business;  
  • Raising the state’s corporate income tax rate; and making changes to policies related to profits earned overseas. 
The budget also uses tax increases to take aim at the harmful health impacts of tobacco and vaping, and especially discourage their use among young people.  

The governor’s budget also would expand the Working Family Tax Credit, a powerful tool for tax fairness that also boosts the incomes and well-being of more than 300,000 lower-income workers and families in Minnesota. We’re especially pleased that the governor’s budget would end the current practice of excluding otherwise eligible workers and working families who file their taxes with an Individual Taxpayer Identification Number (ITIN), rather than a Social Security Number. Many of those currently excluded are the essential workers we’ve all counted on more than ever during this pandemic. 

The budget also includes a tax cut targeted at moderate-income households by expanding the size of the state’s lowest income tax bracket. 

Stay tuned for more analysis as the final FY 2022-23 budget comes together.