Minnesota has unprecedented levels of resources to draw from this legislative session, including a large projected budget surplus and federal funding from the American Rescue Plan (ARP).
The federal American Rescue Plan (ARP) is sending additional dollars to states, local governments, and tribal governments to respond to the pandemic and its related negative economic effects, and kickstart the recovery. The state has received funds for specific purposes, as well as more flexible funds. Federal policymakers put some restrictions on how these dollars can be used in order to encourage states to use them to address health and economic challenges faced by families, workers, and communities, and build a more equitable future.
The State of Minnesota is receiving $2.8 billion in flexible ARP dollars. As part of an agreement last year, Governor Tim Walz and legislative leaders decided to allocate these dollars as follows:
- $1.2 billion was used as “revenue replacement,” making up for lower state revenues resulting from the pandemic; $633 million of public services in the state’s budget in FY 2022-23 and $550 million in FY 2024-25 are funded by flexible ARP dollars.
- $500 million was set aside in an “Immediate COVID Response Fund” to address pandemic-related needs. Walz has authority over how these funds are used, and they have largely been allocated already for things ranging from supporting summer learning to incentivizing Minnesotans to get vaccinated to emergency rental assistance to child care to addressing the pandemic’s impact on state agencies.
- $1.2 billion would be allocated this legislative session. Legislation passed last session also established that $250 million be used for payments to frontline workers but has not yet been distributed. It was presumed, but not required, that these be funded by ARP funds.
Now that policymakers are back in session, let’s take a look at the different ideas that policymakers are proposing to use that remaining $1.2 billion.
Governor Walz’s approach
The governor’s supplemental budget proposes two uses for the remaining ARP flexible dollars. He proposes that $1 billion go to payments to frontline workers in health care, child care, grocery, food service, transportation, public safety, retail, long-term care, manufacturing, and other sectors. The administration reports that this translates to payments of $1,500 each to about 667,000 workers. The remaining $150 million of ARP flexible funds and $350 million of general funds would go toward a COVID-19 emergency response account to respond to emerging needs more nimbly, similar to the Immediate COVID Response Fund enacted last year.
Senate’s approach
The Minnesota Senate’s approach to ARP flexible funds was recently passed in Senate File 2677, which would put $2.3 billion in ARP flexible funds into the state’s Unemployment Insurance (UI) Trust Fund. You might wonder how this is possible if there is only $1.2 billion remaining. The bill would repeal the use of $1.2 billion of ARP funds for revenue replacement agreed to last year, and fund that portion of the budget with general state resources instead.
These dollars going into the UI Trust Fund would provide an untargeted benefit to all employers that pay into it, whether they are struggling small businesses or nonprofits, or the largest, most profitable multinational corporations.
Why are policymakers focusing on the UI Trust Fund? Normally, the UI Trust Fund is funded through Unemployment Insurance taxes paid by employers; these funds then are used to pay UI benefits for jobless workers. Funds are built up in the Trust Fund over time so they are there when needed. If the Trust Fund does not have enough resources to cover UI benefits to jobless workers, states can receive loans from the federal government.
As a result of the pandemic, Minnesota’s UI Trust Fund was depleted and the state took a loan from the federal government. When this happens, there is an existing process for rebuilding the Trust Fund and paying back the loan gradually over time through additional UI taxes and assessments on employers. These additional assessments would largely begin starting this year. The Senate proposal would prevent those additional taxes and assessments from applying by putting $2.3 billion of ARP funds and $408 million of general fund dollars into the Trust Fund. (Walz also proposes putting $2.7 billion into the Trust Fund, but those dollars would come from the state’s general fund surplus.)
Regardless of the funding source, such proposals use a substantial share of available resources on an untargeted benefit for employers instead of making other investments in workers, families, and communities.
While policymakers have been negotiating on whether a compromise deal could be reached that covers the UI Trust Fund and frontline worker pay issues, Senate Majority Leader Jeremy Miller has also said that they no longer are bound by the agreement they made last year to use $250 million to support frontline workers.
House’s approach
The House has not yet released a detailed proposal for the remaining flexible ARP dollars, but we expect that to come in view as they put together their overall budget plans. The House has put forward some proposals on the issues that the Senate and Walz have raised in their ARP plans.
The House has passed House File 2900, which would allocate $1 billion in frontline worker payments. Similar to the governor’s proposal, this bill would send payments of up to $1,500 to frontline workers in a number of sectors. In contrast to Walz, the House would pay for these payments with general fund dollars instead of ARP funds.
The House Workforce and Business Development Finance and Policy Committee has passed House File 1035, which would allocate $1.2 billion in ARP flexible funds and $439 million of general funds to the UI Trust Fund to get it to a $0 balance. This bill would provide a smaller, though still untargeted, benefit to employers than proposed by the Senate or Walz. It would significantly reduce the additional taxes and assessments employers would see compared to current law, while still following the traditional approach of employers having some responsibility to fund the UI Trust Fund. It also pays attention to the needs of workers, and recognizes how difficult it is for many folks to attain UI benefits when they are out of work. It would end the current prohibition preventing non-licensed school employees from claiming UI benefits and give workers up to 60 days to appeal determinations regarding their eligibility for UI benefits.
Looking ahead
As policymakers negotiate the use of the remaining flexible ARP funds, their decisions should be guided by the intent for these dollars: address the health and economic effects of the pandemic on families, workers and communities, and build a more equitable recovery.