Walz, Legislature agree to $52 billion budget framework, boosted by $2.8 billion in COVID relief

Weekend negotiations produced a ‘numbers only’ budget with major policy differences undecided

By: - May 17, 2021 12:42 pm

The quadriga horses at the Minnesota State Capitol in St. Paul, Minnesota. Photo by Tony Webster.

Gov. Tim Walz and top Minnesota legislative leaders on Monday announced they had reached a “numbers only” budget, agreeing to a $52 billion two-year budget that would fund summer school, cut taxes for businesses and Minnesotans and divvy up more than $2.8 billion in federal COVID-19 recovery funds. 

The agreement arrives in the waning hours of the regular legislative session, leaving still much work to be done to draft the specifics of the budget to fund state operations beginning July 1. Lawmakers will be returning next month in a special session to approve the new budget. 

“We’ve got more work to do, the path is clear,” Walz said on Monday. “We’ll button this thing up.” 

The signed, tentative agreement will serve as the framework for committees to craft their respective budget bills, with a May 28 deadline to finalize budget spreadsheets, according to the budget agreement. 

The global budget agreement: $70 million for the expansion of high-speed internet in rural parts of the state; $100 million for housing infrastructure bonds; $75 million for summer school and $12 million for the Minnesota Zoo, which faced major revenue shortfalls caused by reduced attendance during the pandemic. The state’s budget reserve will be boosted to $2.4 billion as well.

Helping cut through the logjam was the infusion of more than $2.8 billion in funding through the American Rescue Plan Act, which provided one-time money for priorities sought by both Democrats and Republicans.

“President Joe Biden and the Democratic members of Congress who voted for the American Rescue Plan made this agreement possible today where we were able to do pretty much everything everybody wanted,” said House Speaker Melissa Hortman, DFL-Brooklyn Park.

A fight over who would have spending power over more than $2.8 billion in federal COVID relief funds has been settled: Lawmakers will get to dictate the spending of almost all of the federal money save for $500 million that Walz will control as he continues managing the end of the COVID-19 pandemic. 

Businesses that received Paycheck Protection Plan loans and people who collected unemployment benefits will not have to pay state taxes on their business loans or unemployment checks, according to the deal struck. That was made possible by recently issued guidance by the federal government that said states could use federal COVID-19 relief funds to cut taxes for those purposes.

Negotiations over any possible policy will continue. 

“This is a numbers only budget,” Hortman said, emphasizing that House Democrats will continue to push for police reform and accountability measures. 

The result of weekend budget negotiations produced no major wins for the DFL-led House, GOP-majority Senate and DFL governor, beyond some new spending in education, funded in large part with one-time federal COVID relief dollars.

Senate Republicans, who advocated for no new taxes, are able to say “promise kept,” Senate Majority Leader Paul Gazelka said. 

“It was a balanced budget without raising taxes,” Gazelka said. 

Senate Republicans had previously threatened to hold up the budget for the Department of Natural Resources, which funds state parks and manages the state’s forestry, water and ecological resources, over the Walz administration’s push to implement new car emission standards modeled after California.

Gazelka on Monday said that while his caucus opposes the new emission standards, he will leave the policy debate to conference committee leaders who are working to hash out differences between House and Senate budget bills.

Joining Walz on Monday for a joint press conference were Lt. Gov. Peggy Flanagan, House Ways and Means Chair Rena Moran, DFL-St. Paul, and Senate Finance Chair Julie Rosen.

The three principals negotiated much of Sunday, working late into the evening. 

The legislative session is supposed to adjourn at 11:59 Monday night, but the typically busy and frenzied pace of the final hours of a legislative session is not expected. 

Legislative leaders said little floor action is expected on Monday before lawmakers adjourn sine die. 

Walz is expected to call legislators back to St. Paul by June 14 — when he’ll need to call a special session to renew his peacetime emergency — to approve the budget. 

With no new budget yet set, layoff notices for state government works will begin to go out either in late May or early June, Minnesota Management and Budget Commissioner Jim Schowalter said. 

He did not offer any additional specifics about the logistics of how a potential state government shutdown would be handled, saying his office had been focused on helping Walz reach a budget agreement.

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Ricardo Lopez
Ricardo Lopez

Ricardo Lopez is the senior political reporter for the Reformer. Ricardo is not new to Minnesota politics, previously reporting on the Dayton administration and statehouse for The Star Tribune from 2014 to 2017, and the Republican National Convention in 2016. Previously, he was a staff writer at The Los Angeles Times covering the California economy. He's a Las Vegas native who has adopted Minnesota as his home state. In his spare time, he likes to run, cook and volunteer with Save-a-Bull, a Minneapolis dog rescue group.

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