Minnesota is flush with cash, but that hasn’t changed the budget debate. Here’s what to expect.

21March 2021

Minnesota is flush with cash, but that hasn’t changed the budget debate. Here’s what to expect.

In the course of a year, the state of Minnesota’s finances have gone from precarious to rolling in dough, and guess how that remarkable change of fortunes has changed the politics of taxing and spending?

It hasn’t.

Democrats still want to raise taxes on the wealthiest and increase social programs for those struggling, and Republicans still oppose any tax hikes and want to see government programs cut.

Both parties have their reasons — and they have tried to adapt their arguments to match the moment.

If you’re sort of in the middle, don’t worry. While Democrats control the governor’s office and state House, Republicans control the Senate. So whatever happens, don’t expect either side to get too much of what they want.

Here’s what you can expect between now and May, when both sides must agree on a balanced two-year budget that will likely hover close to $50 billion: A lot of rhetoric and bickering and a lot of statements by politicians to their supporters that will have varying degrees of accuracy and exaggeration. And in the end, unless something unforeseen happens, you can expect the state of Minnesota’s finances to be in pretty good shape.

FINANCIAL ROLLER COASTER

In 2019, when Gov. Tim Walz proposed his first budget amid a healthy projected $1.5 billion surplus, the state needed to shore up its rainy day fund and boost spending on K-12 education, he said, among other arguments for his proposed tax increases. Besides, some Democrats contended, the budget picture was never as rosy as those forecasts because they didn’t account for inflation. Republicans said a healthy financial time was no time to raise taxes.

In the spring of 2020, when the coronavirus and its associated restrictions had thrust record numbers to seek unemployment, a $2.4 billion hole was projected. Walz said the state and its residents would need as much government as we could afford to weather the pandemic at what felt like a looming economic calamity. Republicans said a looming calamity was no time to consider anything but cuts to taxes and government spending.

Following last month’s forecast that the state’s economy was on the mend and its finances would emerge from the pandemic healthy, Walz and Democratic lawmakers said the uneven toll from the pandemic necessitated increased spending for those left out of the recovery — by increasing taxes on those who prospered. On Thursday, Walz scaled back his proposed tax hikes, but stood by many of them, and his reasoning. Republicans said a post-pandemic recovery was no time to raise taxes.

FEDERAL WINDFALL

The roller-coaster year for the state’s prospects was capped earlier this month when President Joe Biden signed the $1.9 trillion American Rescue Plan, which includes an estimated $7.6 billion for Minnesota. Included in that pile of money are $4.88 billion in smaller piles of money that carry direct benefits for state and local government finances:

  • $2.6 billion for the state;
  • $1.1 billion for counties;
  • $595 million for metro cities;
  • $420 million for other local government agencies;
  • $1.3 billion for public schools.

The strings attached to those funds aren’t yet clear to policymakers, but there’s no doubt that such an influx of cash will take enormous pressures off the state’s accounts, which, again, are already healthy.

And they’re not the only piles of money that will ease demands on the state. Transit in the Twin Cities and rural areas, airports, state colleges and universities, child care providers, struggling renters, the unemployed, public works programs, and COVID-19 public health initiatives are also among that $7.6 billion, a figure estimated by Federal Funds Information for States, a group that tracks how federal dollars flow to state governments.

And then, of course, there are direct federal payments to Minnesotans and a new monthly tax refund for parents that is intended to raise legions of families out of poverty.

GRAPPLING WITH THE MONEY

Elected officials at the state Capitol have just begun to digest those numbers and figure out what they really mean — but they’ve already honed their rhetoric.

“He still wants to raise taxes,” Senate Majority Leader Paul Gazelka said Thursday in a video statement referring to Walz. “Can you believe that, when you think about all of the billions and billions of dollars coming in from the federal government?”

Republicans have often focused their arguments on the image of a small-business owner whose doors were shuttered by Walz’s pandemic restrictions.

The Democrats’ arguments are centered around a belief that just because the state’s books might be well in the black, there are pressing needs across large sections of society that weren’t being met before COVID-19 — and have only been exacerbated by it. The images they evoke tend to be those of frontline workers, such as food processors, grocers, nurses and teachers, all people who have been compelled to work in person during the pandemic, often while somehow tending to children attending school remotely.

When Gazelka and Senate Republicans announced their own budget blueprint earlier in the week — also a plan that has yet to account for the new federal funds — Democratic reaction was swift.

“Instead of investing in the tools Minnesotans need to rebound from this crisis, Senate Republicans have presented more of the same with their budget targets,” said Rep. Rena Moran, DFL-St. Paul, who chairs chairs the House Committee on Ways and Means. “They are putting the very wealthiest among us and big corporations ahead of the Minnesotans who are counting on us to help them overcome their struggles and challenges.”

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