Last Friday, Governor Tim Walz released an updated budget proposal that responds to the less rosy state economic forecast released in late February. The revised budget retains the Walz/Flanagan administration’s “One Minnesota” priorities, and augments the surplus by maintaining and raising revenues to invest in health care, education, broader economic opportunity, and transportation.
The original budget anticipated that the surplus would shrink by the time the February Forecast came around, and left $789 million unspent, or “on the bottom line”, which created a cushion that absorbed much of the reduction in the surplus. In addition, Walz’s revised budget adapts to the new forecast figures by:
- Reducing its new general fund investments by $131 million through a combination of scaling back some original proposals and using other funding sources, such as federal or dedicated funds, to fund certain initiatives;
- Raising $65 million more in general fund revenues than in the original tax proposal; and
- Transferring $142 million of unspent health care reinsurance funding back into the general fund.
The revised budget also includes $37 million in new investments that were not in the original budget proposal, the largest of which go to higher education.
Here’s a look at some of the more specific revisions to the Governor’s budget proposal.
New investments
While many budget areas saw only slight adjustments, one area of substantial change was higher ed. The University of Minnesota and Minnesota State systems would receive additional dollars to support their students under the governor’s latest proposal. Over the FY 2020-21 biennium, the University of Minnesota and Minnesota State would receive an additional $51 million and $65 million respectively, an increase of $25 million from the original budget. These funding increases are expected to help these institutions keep up with the costs involved with educating their students. In return, the University of Minnesota and Minnesota State are expected to minimize any increases in tuition.
Health and human services
Walz’s revised budget includes changes in the realm of health and human services. Fortunately, many of our priorities in this budget area, including the repeal of the provider tax sunset and the $100 per month increase to the MFIP welfare cash grant, are retained in the revised budget.
Child care assistance (CCAP) would see several major changes compared to the governor’s original proposal. While it would still receive a funding bump to take 1,000 families off the waiting list, other provisions changed significantly. For example, child care providers would see one near-term increase in their reimbursement rates under the updated proposal, but future rates would not be automatically updated every three years (as was the case in Walz’s original proposal). This change reduces the amount going to increasing provider rates by $46 million in FY 2022-23. This is an issue policymakers will need to revisit, as reasonable reimbursement rates for providers is an important factor in ensuring parents have options. The governor’s revised proposal also includes over $2 million in FY 2020-21 in new spending on oversight and integrity of CCAP, including 10 additional staff members to analyze data and conduct inspections.
Finally, more money will be returned to the state’s general fund and health care access fund (HCAF) due to updated projections for the Minnesota Premium Security Plan (also known as reinsurance). Reinsurance provided payments to health insurance companies to reduce costs in the individual health insurance market, and the program is set to end in 2019. The updated numbers show $142 million transferring back to the general fund, and $394 million transferring back to the HCAF. Final numbers will be available later this year.
Taxes
The revised budget retains the original focus on raising the revenues needed to fund health care, transportation, and other services Minnesotans count on to thrive. It proposes raising an additional $65 million in general fund revenues FY 2020-21 through a set of four measures they identify as addressing corporate loopholes, and by changing the timing of two existing tax proposals.
One challenge facing the state outlined in the February Forecast is that Minnesota has a forecasted surplus in the near term (the FY 2020-21 biennium) but falls just short of having enough revenues coming in to cover anticipated spending in the next budget cycle (FY 2022-23). Walz’s budget proposal balances in each of the two budget cycles, in part by carrying forward positive balances at the end of FY 2020-21 to cover expenses in FY 2022-23. Walz’s budget makes needed investments in our future prosperity and proposes raising additional revenues fund those investments; there will still be more for policymakers to do reach sustainability past the four-year budgeting window.
What’s next
The House released their budget targets earlier week, and the Senate released their targets today. These targets set the stage for both legislative bodies to start putting together their FY 2020-21 budgets. Stay tuned to stay up to date on how the state’s budget comes together!