A big surplus, but a long wishlist

Democrats have a historic surplus and over two months to decide what to do with it.

By: - February 27, 2023 8:32 pm

Sen. Majority Leader Kari Dziedzic, DFL-Minneapolis, (left) and House Speaker Melissa Hortman, DFL-Brooklyn Park spoke about the budget forecast on Feb. 27, 2023. Photo by Michelle Griffith/Minnesota Reformer.

Minnesota’s budget surplus estimate for the next two years is $17.5 billion, state officials said Monday. Now, state legislators will debate in earnest what problems, policies and programs warrant the most money.

The Democratic majority is advocating for an increase in education spending, more child care support for families, child tax credits, affordable housing subsidies and creating a paid family leave program.

Minnesota Management and Budget said the latest forecast is similar to November’s. The office said Minnesota’s economic outlook is positive, with a milder recession and lower inflation expected compared to the previous forecast.

“The key takeaway for today’s budget forecast is that the economy is stable and the budget outlook is very good,” said Jim Schowalter, commissioner of Minnesota Management and Budget, which is the state government’s main budget agency. 

Here are five takeaways from the latest budget forecast released on Monday:

Projected surplus drops slightly from $17.6 billion to $17.5 billion

The slight drop in the projected surplus is mostly due to new laws enacted by the Legislature. Lawmakers in January approved over $100 million in tax cuts after aligning the state tax code with recent changes to federal tax law.

Last week, Gov. Tim Walz signed into law a bill that requires MMB to include inflation in the state’s spending calculations. The agency was previously prohibited from doing so thanks to a rule lawmakers created over 20 years ago when the state was facing a budget deficit. It worked like this: Budget forecasters could not build any inflation into their estimate of what it would cost to maintain current spending for the next two years.

Democrats have long called the move a gimmick to make the state’s budget look better, and the bill’s advocates say that lawmakers will now have more accurate data with which to craft the state budget.

Without the legislation in place, the state’s estimated surplus would have been about $19 billion for the next biennium and over $22 billion the following two years.

Democrats still likely to battle over funds

DFL lawmakers have introduced legislation like creating a mandatory paid family leave program for businesses, distributing one-time rebate checks, increasing the K-12 education funding formula, distributing a child tax credit and offering tuition-free college for Minnesota students, among many other ideas. 

One issue that will likely be contentious among Democrats is eliminating the state tax on Social Security benefits, which applies to less than half of Social Security recipients. Some DFL lawmakers last year campaigned on fully eliminating the state tax — something that DFL leaders and Walz don’t support. They argue that plan is expensive and will give tax breaks to wealthy Social Security recipients while leaving out the people who need help the most.

Sen. Aric Putnam, DFL-St. Cloud, and Rep. Dave Lislegard, DFL-Aurora, are both chief authors of bills in their respective chambers that would eliminate the tax on Social Security benefits completely. Both come from the types of swing districts that delivered Democrats their narrow legislative majorities.

Walz in his budget proposal last month offered a partial tax cut on Social Security benefits, and said on Monday that wealthier Minnesotans would be “just fine” continuing to pay the state tax. Many Republicans campaigned on eliminating the tax on benefits.

Sen. Majority Leader Kari Dziedzic, DFL-Minneapolis, said she’s still talking to her caucus about what those tax cuts could look like and where her one-seat majority stands on the issue.

House Speaker Melissa Hortman, DFL-Brooklyn Park, said she wasn’t worried about whether anyone’s seat in her caucus would be vulnerable in the next election if they didn’t keep their campaign promise of eliminating the Social Security tax.

“The goal will be … to make sure that those who don’t need tax cuts, who are doing quite well, are not the people who benefit,” Hortman said. “Right now, we’re really focused on those families and those individuals in Minnesota who struggle to get by and making it easier for them to afford their lives.”

Where’s my Walz check?

Walz last month released a $65 billion budget for fiscal years 2024-25. His plan included $2,000 checks to Minnesota families with income below $150,000 and $1,000 checks for single filers making less than $75,000. Checks would be sent to about 2.5 million Minnesotans, Walz said. 

“I believe money in the hands of people right now helps them make a difference,” Walz said.

Whether or not the so-called Walz checks will pass this session is unknown, DFL leaders said Monday. They are still having conversations about it.

“It’s too early to say, but we certainly support the concept,” Hortman said. She noted that many House Democrats support a child care tax credit and want to reduce child poverty. 

The House and Senate have both introduced tax bills that include the one-time rebate checks for Minnesotans and will hold hearings on them this week.

Walz introduced his rebate checks last year, but the proposal stalled in the Republican-controlled Senate. They were unsupportive of the name “Walz checks” and wanted permanent tax cuts instead.

Interest groups begin to lobby in earnest

Advocacy groups and nonprofits have been swarming the Capitol to lobby lawmakers for a piece of the historic budget surplus. Their efforts will likely be turbocharged now that legislators will begin to draft the budget using the February forecast.

On Friday, advocacy groups and union leaders held a press conference urging lawmakers to increase K-12 education funding, create a paid family leave program and improve access to health care, among other proposals.

“Right now, our schools are not OK,” said Education Minnesota President Denise Specht. “We have great educators and dedicated students, but the mental health crisis combined with the shortages of educators is taking a toll.” 

Specht’s union was a key financial and political backer of the Walz reelection and DFL legislative campaigns during the midterm election. “Educators need the state to step up and fully fund public education this year. It’s going to take billions.” 

Doran Schrantz, executive director of ISAIAH, a progressive ecumenical group, said legislators have an opportunity to make Minnesota an inclusive state and better the lives of people of color. Schrantz also said it’s time to increase taxes on wealthy corporations, and she discouraged lawmakers from eliminating the state tax on Social Security benefits.

“We all absolutely believe that we need to help and support seniors in Minnesota. But this proposal in particular is a bit of a red herring,” Schrantz said. “It doesn’t help seniors who are living primarily on Social Security. Most of the benefit goes to upper-income retirees while providing nothing, or close to nothing, to the majority of seniors in Minnesota.”

Republicans, Democrats want to return surplus to Minnesotans but differ on how

Both GOP and DFL lawmakers agree that the state needs to give at least some of the $17.5 billion surplus back to Minnesotans, but what that looks like varies widely between the two parties. 

Sen. Minority Leader Mark Johnson, R-East Grand Forks, said his caucus wants to eliminate the state tax on Social Security and give money back to Minnesota taxpayers to ensure they can afford to live in the state.

“We’re just making sure that the first people that are being taken care of are Minnesotans, not Minnesota state government,” Johnson said.

On Monday, Sen. Bill Lieske, R-Lonsdale, made a motion on the floor to bring forward a bill that would allocate half the state’s surplus — $8.7 billion — back to Minnesotans through rebate checks. Senate Democrats voted down the motion to bring forward the bill. Lieske named his bill with a bit of a flourish, calling it “The Governor Tim Walz Rebate Check Act of 2023.”

“Last year, Governor Walz said he thought half the surplus should go back to Minnesotans. I was disappointed his most recent budget proposal didn’t send half the surplus in rebate checks back but instead spends it on big government programs that include tax hikes and fee increases,” Lieske said in a statement. “This bill would be an opportunity for Governor Walz to make good on his 2022 comments and give the surplus back to the people.”

On Tuesday, Republicans will release their tax package called the “Give It Back” plan. Johnson said it includes “common sense” proposals that both Republicans and Democrats campaigned on, and he hopes it garners bipartisan support.

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Michelle Griffith
Michelle Griffith

Michelle Griffith covers Minnesota politics and policy for the Reformer, with a focus on marginalized communities. Most recently she was a reporter with The Forum of Fargo-Moorhead in North Dakota where she covered state and local government and Indigenous issues.