ST. PAUL — With a sunnier economic outlook on the horizon, Gov. Tim Walz on Thursday, March 18, put forward a tweaked state spending proposal aimed at boosting students, families and businesses hit hardest during the pandemic.
The budget request came with more tax relief for Minnesotans than he'd laid out in an earlier draft and it left out some of the tax hikes he'd previously asked for. The governor issued an early budget plan in January before state economists announced that a projected $1.3 billion deficit in the upcoming budget had turned into a $1.6 billion surplus.
Walz said the additional funds could allow Minnesota to provide tax relief to some of the businesses that took out federal Paycheck Protection Program loans, workers that collected unemployment in 2020, renters and working families. And he built in provisions to ensure that workers can build up as much as 48 hours a year of earned sick and safe time.
"Minnesotans have met the challenges of COVID-19 pandemic as they always do when faced with hardship — with grit and resiliency,” Walz said in a news release. “But we know that our students, working families, and small businesses have borne the brunt of this pandemic."
The update didn't factor in $2.6 billion in federal aid funding set to come to Minnesota from the American Rescue Plan. Walz's spokesman said he would issue a third budget proposal in coming weeks to adapt to the additional one-time funds.
Walz remained in quarantine Thursday after a potential exposure to COVID-19 earlier in the week. His State of the State address, scheduled for Sunday, March 21, was postponed. A spokesman for the governor Thursday said Walz tested negative for COVID-19.
Proposals put forward by lawmakers and the governor will set the goalposts for end-of-session budget debates. Senate Republicans this week shared their $51.9 billion plan, along with a commitment to block any new taxes. House Democrats are set to make public their proposal next week.
The governor dropped requests to raise estate taxes and taxes on tobacco products, and he reduced a proposed hike on the state's corporate tax rate. But his revised budget still calls for creating a new tier for households that earn $1 million or more each year.
If approved, the new taxes could bring in $670 million, per state budget officials. And Walz said that money, along with surplus funds, could be used to waive the first $350,000 for businesses that took out Paycheck Protection Program loans and now face income taxes on that funding. The governor also proposed offering tax relief on Minnesotans that collected unemployment during the pandemic.
Under his plan, up to $10,200 that Minnesotans received from the federal government in additional unemployment benefits would be exempted.
And while the governor earlier this year said the state should pull from rainy day funds to help balance the budget, his revised proposal called for spending $491 million from the general fund to refill the account.
“Since the state now projects a budget surplus, we no longer need to use rainy day funds to balance the budget,” Minnesota Management and Budget Commissioner Jim Schowalter said, noting that keeping the fund full can help the state "be prepared for whatever surprises are still ahead.”
As with many ideas in the divided Legislature, the plan met blowback from Republicans and support from Democrats.
Republicans on Thursday maintained that the state should not increase taxes coming out of a year that had been financially draining for many.
"We've got to work together with the governor, but it's not to raise taxes, it's to pass a balanced budget that makes sense for Minnesota," Senate Majority Leader Paul Gazelka, R-East Gull Lake, said.
Meanwhile, Democratic leaders said they supported the governor's efforts to target financial relief to those in the toughest positions.
"To truly build back a stronger Minnesota, we need to make investments in our communities statewide to address the disparities and close the gaps statewide to support all Minnesotans, and the Governor’s revised budget proposal recognizes that need," Senate Minority Leader Susan Kent, D-Woodbury, said.