A first look at Governor Walz’s budget proposal on expanding economic opportunity

Clark Goldenrod and Nan Madden
Jan 21, 2022
The state of Minnesota is projecting an historic $7.7 billion surplus for the current FY 2022-2023 budget cycle. This presents an incredible opportunity to make transformative changes in our state and build a more equitable future, focusing on what Minnesotans and their communities need to thrive, and dismantling the deep divides in opportunity across lines of race, income, and geography.  

Yesterday, Governor Tim Walz released a preview of a portion of his budget plan with the theme of “expanding economic opportunity.” This includes proposals ranging from Unemployment Insurance financing, payments to essential workers, tax rebates and credits, higher education, support for farmers, and other economic development and workforce elements.   

Walz’s proposal includes some important elements to make it easier for everyday Minnesotans to make ends meet, especially those who worked on the frontlines during the pandemic. But we are concerned that the proposal would put the equivalent of one-third of the state’s surplus into the Unemployment Insurance Trust Fund, providing a tax benefit to all employers that pay into it, regardless of whether they are struggling or thriving. 

Here is our first look at some of Walz’s proposals related to economic support for workers, families, and businesses.  

Unemployment Insurance financing 

The largest component in this package would put $2.7 billion into the Unemployment Insurance (UI) Trust Fund. This proposal would use roughly one-third of the state’s projected surplus but it is not targeted to businesses facing tough times.   

The dramatic job losses seen under COVID demonstrated the importance of Unemployment Insurance benefits in keeping workers and the economy afloat during tough times; federal policymakers took action to fill gaps in many state UI systems so that more jobless workers and their families got the help they deserved.  

Employers pay Unemployment Insurance taxes, which go into the UI Trust Fund in order to pay UI benefits for jobless workers. Funds are built up in the Trust Fund over time so that they are there when needed. If the Trust Fund does not have enough resources to cover UI benefits to jobless workers, states can receive loans from the federal government.  

As a result of the pandemic, Minnesota’s UI Trust Fund was depleted, and the state took a loan from the federal government. When this happens, there is an existing process for rebuilding the trust fund and paying back the loan gradually over time through additional UI tax assessments on employers. Walz’s proposal would instead use general state resources to refill the Trust Fund and pay back the federal loan.  

If providing assistance to employers is a priority this session, a better way would be through targeted support to those businesses and nonprofits who are truly struggling. That would leave more of the surplus to go toward strengthening those Minnesota individuals, workers, families, and communities that were severely harmed by the pandemic, and supporting an equitable recovery.   

Economic support for workers and families 

As part of the 2021 state budget agreement, policymakers decided that $250 million should go to essential workers who stayed on their jobs during the pandemic, which they have not yet received. Walz proposes that $1 billion go to frontline workers in health care, child care, grocery, food service, transportation, public safety, retail, long-term care, manufacturing, and other sectors. The administration reports payments of $1,500 would go to about 667,000 workers each. 

The governor also proposes one-time direct payments of $175 for single taxfilers with incomes up to $164,400 and $350 for married joint filers with incomes up to $273,470.    

In addition, Walz proposes expansions of two existing tax credits that lower- and middle-income families can use to offset some of the costs of raising children. 
  • The income level at which families can qualify for the K-12 Education Tax Credit would be increased. The administration reports that this would make 38,600 more families eligible for this tax credit, which returns some of what families spend on their children’s educational activities. 
  • The state’s Child and Dependent Care Tax Credit would also be expanded to provide larger tax credits and allow more middle-income families to qualify to receive it. This is a tax credit that refunds some of what families pay for child care. In addition, the special credit available to parents of newborns would be available to parents regardless of their marital status (currently it is limited to married couples).  
We know that many families struggle to find affordable child care that meets their needs, and we hope that, when the additional portions of Walz's budget come out, we will see a strong investment in child care assistance that brings down the costs for lower-income families. In addition, there is more that could be done so that a larger number of lower-income Minnesotans are included in any permanent tax reductions that are enacted this year, such as by expanding the Working Family Credit and Renters’ Credit. 

More budget information to come 

The remainder of Walz’s budget proposal is expected to be released next week, one portion regarding children and families, and another on health and safety; we expect to see more details about the economic opportunity proposals as well. These are in addition to Walz’s infrastructure proposal released earlier this month. 

We will take a deeper dive into the economic opportunity proposals – including those regarding education and workforce development – as well as the full scope of the governor’s supplemental budget proposal, as more information becomes available.  

Our analysis will be grounded in the understanding that while the two-year bipartisan budget agreement policymakers passed in 2021 included some important responses, it fell short of fully responding to the health and economic impacts of the pandemic, or the deep disparities in opportunity and long-standing areas of disinvestment that were worsened by COVID.