ST. PAUL - It’s the thing Minnesota Republicans and Democrats have to agree on — eventually.
Crafting a new, two-year state budget is lawmakers’ top priority this legislative session. The current, $45.5 billion biennial spending plan runs out June 30 and without a new one, state government will shut down.
Gov. Tim Walz, House Speaker Melissa Hortman and Senate Majority Leader Paul Gazelka have vowed not to let that happen.
With the nation’s only divided Legislature, they say they want to prove government can still get things done in a bipartisan way.
Negotiations are likely to be intense over the next few months. Luckily, the state has a $1.5 billion surplus to work with, but it might not provide as big of a cushion as many hope.
Walz will start the process Tuesday when he releases his budget recommendations. Later this month, a new financial forecast will be released to give lawmakers in the House and Senate updated numbers to start their proposals.
Here’s everything you need to know about how Minnesota collects and spends taxpayer — your — money:
Growing over time
Minnesota government spending has increased by about $6 billion over the past decade. That’s after inflation is taken into account and represents a 15 percent increase in the two-year budget.
In order to keep up with rising expenses, revenues also have grown. Minnesota now collects about 21 percent more in taxes and other revenues than it did a decade ago.
State spending doesn’t just grow because of inflation and more people — Minnesota added about 400,000 residents in the past decade. It also grows when those people want or need more government services, like medical assistance or special-education instruction.
Broken down, state government now raises and spends about $8,000 per resident, every two years. That’s up from about $7,500 in spending and $7,100 in revenues a decade ago.
Where does it go?
The state budget is separated into about a dozen different spending areas, focused on everything from education to services for veterans to transportation. Two areas, public schools and health and human services, account for 70 percent of the state budget.
Those also are the fastest-growing areas, accounting for the vast majority of the spending increases over the past decade. The money has largely gone to a mix of new and existing programs as well to serve the state’s growing population.
Government is a people-focused enterprise, and when a state’s population or the services those people need grow, spending follows.
How have revenues kept pace?
State revenues have grown over the past six years or so because of a tax hike on high-income residents as well as increases on things like tobacco products. Increased corporate tax revenues also helped, especially as the economy improved.
Those tax increases were approved under then-Gov. Mark Dayton when Democrats had full control of the Legislature. The state brings in about $3 billion more every two years because of those tax changes, increasing revenues to $45.4 billion for the current biennium.
The new revenue helped wipe out budget deficits from the recession and repay a large funding shift, essentially a $1.8 billion I.O.U., to public schools.
They also paid for new programs like all-day kindergarten and the expansion of public preschool. And they have been used to cut taxes for some businesses and individuals.
What about those budget surpluses?
State officials have regularly projected budget surpluses — when revenues exceed expectations — since the Dayton tax hikes. The state currently projects a $1.5 billion surplus for the next biennium.
That should make crafting the next budget easy, right?
Not exactly. The projected surplus doesn’t include all of the expected spending growth across state government. When all the new expenses are factored in, that $1.5 billion surplus shrinks to about $400 million on the bottom line.
That will easily get eaten up by new spending unless lawmakers find other places to trim or new sources of revenue.
Some lawmakers, including Walz, want to include inflation in budget forecasts — it was taken out during Gov. Tim Pawlenty’s administration. But others say it would just encourage even more unchecked spending growth.
Republicans and Democrats have sets of priorities that often conflict because of their governing philosophies. To pass a budget, they are going to have to agree on ways to solve real-world dilemmas that impact Minnesotans.
Here are a few of the biggest challenges:
- Health care taxes: A 2 percent tax on health care providers is set to expire at the end of the year. Losing that revenue will blow about a $900 million hole in the budget. The money is largely used to keep health insurance affordable and accessible to low- and middle-income Minnesotans, but some of the money goes straight into the general fund. Without it, programs would have to be cut or revenue would have to come from somewhere else. Democrats want to extend the tax, while Republicans want to let it expire.
- Transportation funding: Walz wants to increase gas taxes to pay for the state’s myriad of transportation needs. Roads and bridges across the state need repairs and he wants a “generational transportation plan.” Republicans oppose a gas tax hike. They prefer using existing resources to fund needed improvements and have worked to dedicate money to road and bridge repair and upkeep.
- Equitable education funding: Spending on public schools — from preschool to college — is always one of the biggest debates during a budget year. Walz, a former teacher, said he wants to make state funding for education more fair. That would include picking up more of the state’s share of special-education costs and addressing the gap in how much local school levies raise. Increasing education funding is expensive. With more than 300 school districts and nearly 900,000 students, even an incremental boost adds up fast. Republicans have favored more modest spending increases coupled with new flexibility from state rules that can help school districts save money.
- Tax conformity: This is last year’s “biggest priority” that didn’t get done because of political differences. Minnesota needs to update its tax code to better conform with changes in the federal Tax Cuts and Jobs Act of 2017. Without changes, state taxes will continue to be more complex to file and some people will pay more. Overhauling the state tax code is an opportunity for lawmakers both to cut tax burdens and raise new revenues, but they have to agree on the best mix and who should benefit.
- Other priorities: There already is bipartisan agreement to address a number of other challenges — all of which carry a price tag. Lawmakers want to improve school safety, do more to address the opioid epidemic and protect seniors and vulnerable adults.
A vow to finish on time
Lawmakers enter every budget year declaring they will finish their work on time. The reality is they typically don’t — at least in recent memory.
Since 2010, the state Legislature has reconvened for special sessions every budget year but one, when Democrats had complete control. In 2011, the impasse over how to fill a $6.2 billion budget gap lasted long enough that the government shut down for 20 days.
This year, Walz, Gazelka and Hortman have agreed on a group of deadlines they say will help lawmakers get their work done by the May 20 deadline.
They also contend the budget process will be done in a transparent way the public can be part of. Super-sized budget bills, often used to push through provisions without bipartisan support, won’t be allowed.
But that means Republicans and Democrats will have to rectify their opposing views on the role and cost of state government. They have to — eventually.