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Minnesota to see $2.83 billion from American Rescue Act, reviving tax relief debate

U.S. Treasury officials on Monday announced that the state would receive more than $250 million more than was initially expected.

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U.S. President Joe Biden prepares to sign the American Rescue Plan, a package of economic relief measures to respond to the impact of the coronavirus disease (COVID-19) pandemic, inside the Oval Office at the White House in Washington on March 11, 2021. REUTERS / Tom Brenner
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ST. PAUL — Minnesota is set to receive $2.83 billion in federal aid, a more than $250 million bump from what the state had initially expected, the U.S. Treasury Department announced Monday, May 10.

Department officials published an outline for the roughly $1.9 trillion American Rescue Plan Act along with more detailed guidelines for how states, counties, local governments and other entities could use the relief funds. And they said the first part of the funding would be sent out this week.

The guidelines come as state lawmakers debate over the state's next two-year budget with the final day of Minnesota's 2021 legislative session scheduled for next week. Legislative leaders and the governor have yet to announce spending targets, stalling some of the progress budget committees can make in setting top priorities for the state's roughly $52-billion proposal.

Lawmakers could go into overtime if they can't reach a deal by May 17. But they have a hard deadline of June 30 to pass a budget or risk a state government shutdown.

News of the extra funding and exemptions for prior COVID-19 support payments spurred calls to prioritize tax relief for business owners that took federal Paycheck Protection Program loans and Minnesotans out of work that drew down unemployment insurance benefits. The federal guidance clarified that the funds could be used to waive state income taxes for the supports.

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Senate and House leaders have so far disagreed about how much of the federal aid funding should be erased. And they've split on whether the state should impose new income taxes for top earners that could bring in funding for other programs like schools, health care or worker benefits.

Senate Majority Leader Paul Gazelka, R-East Gull Lake, on Monday said Democratic leaders at the Capitol had “run out of excuses to delay passing PPP and UI tax conformity."

"The tax deadline is Monday," Gazelka said in a news release. "If the House passes PPP and UI conformity, it will give Minnesotans the clarity they need today. "

Gazelka said the extra funding should take off-the-table conversations about raising taxes in Minnesota.

House Democratic leaders said the funding should help ensure that the state can fund schools, health care programs and other priorities. And they urged Senate Republicans not to condition the funding on other policy proposals.

"We can pass federal tax conformity, we can support our hospitals and front-line workers, we can fund our schools, and, critically, we can enact police reform and accountability legislation,” House Majority Leader Ryan Winkler, D-Golden Valley, said in a news release. “But we can accomplish nothing if extremist Republicans try to shut down state parks or cut school funding in order to pursue a right-wing agenda that has nothing to do with the lives or livelihoods of Minnesotans."

Gov. Tim Walz on Monday told reporters that the federal aid funding was "huge" but didn't say whether the funds would change the conversation around potential tax hikes. Walz said that budget negotiations continued over the weekend and were ongoing Monday.

Follow Dana Ferguson on Twitter @bydanaferguson , call 651-290-0707 or email dferguson@forumcomm.com

Dana Ferguson is a Minnesota Capitol Correspondent for Forum News Service. Ferguson has covered state government and political stories since she joined the news service in 2018, reporting on the state's response to the COVID-19 pandemic, the divided Statehouse and the 2020 election.
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