Governor Tim Walz and legislative leaders Monday announced their targets for the FY 2022-23 budget and how they will approach using the flexible federal resources coming to the state from the American Rescue Plan.
The agreement allocates the state’s $1.7 billion surplus for the FY 2022-23 biennium and $550 million of the flexible federal dollars to bring the total resources available to $2.2 billion for the upcoming biennium.
| Budget targets | FY 2021-23* | FY 2024-25 |
| E-12 Education | $525 million | $675 million |
| Higher Education | $100 million | $100 million |
| Health and Human Services | $100 million | $100 million |
| Environment | $30 million | $10 million |
| Agriculture and Broadband** | $10 million | $10 million |
| Housing | $10 million | $12 million |
| Transportation | $200 million | $15 million |
| Public Safety | $105 million | $110 million |
| Labor and Workforce | $125 million | $17 million |
| Energy and Commerce | $16 million | $8 million |
| State Government | $67 million | $63 million |
| Capital Investment | TBD | TBD |
| Other bills | $9.6 million | $6.9 million |
| Net changes | $1.3 billion | $1.1 billion |
| Net tax/tax aids and credits changes | -$754 million | -$180 million |
| COVID flexible fund | $500 million |
The budget agreement calls for $1.3 billion in net new general fund spending in FY 2022-23, roughly splitting the difference between what the House, Senate, and governor had originally set out in their plans. The largest increase is in E-12 education, where policymakers have agreed to an additional $525 million in FY 2021-23 and $675 million in FY 2024-25.
Policymakers also agreed to a $754 million net tax reduction in FY 2022-23. This is one of the few areas where the budget deal lays out specifics; the tax bill will include tax conformity for businesses who received Paycheck Protection Program loans and for certain workers who received Unemployment Insurance benefits last year. Those two items are expected to take up $644 million of the tax target in FY 2022-23.
The budget agreement also creates a mechanism to strengthen the state’s budget reserve. If the upcoming November forecast shows a projected surplus, the entirety of that surplus would go to the budget reserve until it reaches $2.4 billion.
The budget agreement also lays out an approach for how the state’s policymakers will allocate the $2.8 billion in flexible federal resources coming to the state from the American Rescue Plan. As mentioned earlier, the budget agreement would use $550 million in this biennium and $550 million in the next to fund the state’s budget. In addition, the agreement will allow the governor to allocate an additional $500 million in flexible federal funds through a COVID Flexible Fund; this will include $75 million for summer learning.
The use of the remaining $1.2 billion of flexible federal dollars, much of which will come to the state by May 2022, will be determined through the legislative process next year.
There still is a lot of work to be done to fill in the details of the specific budget bills. Budget and tax conference committees – now operating as “working groups” – will continue their work over the next few weeks to put together the final budget bills. The budget agreement calls for them to reach agreement on their fiscal spreadsheets by May 28 and bill language for the various budget bills by June 4.
Many Minnesotans are still deeply feeling the impact of the COVID-induced economic recession. It continues to be imperative for policymakers to address the pandemic and build a more equitable future as they determine how specifically they will invest state and federal dollars in our schools, health care, and communities. Policymakers cannot pass a “status quo” budget that leaves in place Minnesota’s stark gaps in well-being across race and income. Policymakers should ensure that the hundreds of thousands of Minnesotans who are having trouble making ends meet have what they need to get by. That should include an increase in economic supports for low-income families participating in MFIP, supports for Minnesotans who are undocumented and have been left out of much of the COVID relief so far, rental assistance, and investments in BIPOC-owned businesses. Policymakers should also enact policy changes to keep Minnesotans, and particularly Black and Brown Minnesotans, safer in their interactions with police.
It’s disappointing that the tax target does not raise additional progressive resources to make long-term, sustainable investments to build a more prosperous and equitable state. But policymakers should still make progress toward a fairer tax system and prioritize those Minnesotans struggling most to get by including expansions of the Working Family Credit and Renters’ Credit in their final tax legislation.