A look at Governor Walz’s budget proposal

Last week, Gov. Tim Walz presented bits of his budget proposal. Yesterday, he released his full budget recommendations, and this is how he plans to spend Minnesota’s budget surplus.

Tax aids, credits, and refunds

Through the largest tax cut in state history at $8 billion, our One Minnesota Budget invests directly in the people that made our state strong in the first place. For a middle-class family of four, our budget could put $10,000 back in their pocket.
 
Let’s get this done.

— Governor Tim Walz (@GovTimWalz) January 24, 2023

While this is the biggest part of Walz’s proposal, it is not quite true that his proposal cuts taxes by up to $8 billion. The biggest single spending proposal under this category is Walz’s checks, which total $3.9 billion. These are one-time payments and do not necessarily reduce taxes for Minnesotans.

What effectively constitutes tax cuts are Walz’s numerous proposals to expand tax credits, the two biggest ones being the child tax credit and the child and dependent tax credit — both of which will cost $3.4 billion in the next two bienniums.

Walz is also expanding other credits, including the Angel tax credit, Working Families Credit, and Agriculture Building Bond credit, among others. Walz has also proposed a Social security tax exclusion — which will cost about $450 million, but at the same time is raising the Capital Gains tax for high-income Minnesotans.

K-12 Education

There are three major spending proposals when it comes to K-12 education. These are:

(1) The proposal to increase the K-12 funding formula and then index it to inflation in 2026 and the years afterward.

(2) The proposal to spend money on special education so that schools do not use general funds for such programs.

(3) Universal meals.

Together, all of these programs will have a total of $4.5 billion in the next two bienniums — that is FY 2024-25 and FY 2026-27. But in total, Governor Walz proposes spending $6.9 billion on Education in those two biennia.

Economic development, Energy, Agriculture, and Housing

Walz also proposes spending $1.9 billion on programs that fall under Economic development, Energy, Agriculture, and Housing. While this part of the proposal lumps up numerous programs, about three-quarters of the total spending goes to two programs: Economic Development and Housing.

Under Walz’s plan, the state will spend about $750 million on things that will “revitalize” Minnesota’s economy. Under economic development, the biggest piece goes to the border-to-border broadband grant. Other funds go to numerous existing programs that aim to promote jobs or improve the workforce.

Under housing, funding includes programs like downpayment assistance, homeless prevention, community stabilization, housing infrastructure, and many others.

Health and Human Services

Heath and Human Services is the second biggest spending proposal — for a single agency — after K-12. Walz proposes spending $3.6 billion on the HHS in the next two biennia.

The single biggest spending proposal for HHS is perhaps the Governor’s proposal to support the childcare industry workforce — which will cost about $700 million. Walz also wants to increase CCAP reimbursement rates, bringing the total spending proposal under HHS going to childcare at a little over a billion dollars.

Other

Walz is also proposing about $0.9 billion on transportation — with about $700 million going to a Multi-Modal Transportation Package — mostly involving ‘cleaner transportation’ like electric buses. Walz will also spend $2.4 billion on various state government and Veterans programs — including the $668 million seed money to set up the state’s Paid Family and Medical Leave Program.

Who benefits?

Certainly not Minnesota’s economy. With Walz massively expanding the budget, it’s highly likely that taxes will have to be raised in the future to maintain the extra spending.

For people with children, however, the budget delivers major benefits.