More than 2.5 million Minnesota households would receive checks from the state and many seniors would pay lower taxes on their Social Security benefits under DFL Gov. Tim Walz's $65.2 billion budget.
Walz on Tuesday proposed his full vision of state spending and taxes for the next two years, drawing on an estimated record-breaking surplus of $17.5 billion to boost cash for schools, housing and paid worker leave, and to give tax breaks. His plan amounts to a 26% increase from the current two-year budget, with more than half of the increase in one-time spending.
"As the economy brings pressures onto families, we have the capacity to relieve some of those," Walz said. "Whether it's reducing the cost of child care, or whether it's putting checks and money back in people's pockets."
The governor's budget is the starting point for negotiations with legislators. With Democrats in full control of state government, this year's budget battles are likely to feature nuanced disagreements rather than fundamental differences.
House Democrats and Walz share many goals, said House Speaker Melissa Hortman, DFL-Brooklyn Park, said in a statement. "I look forward to our continued partnership as we craft our budget."
Senate Majority Leader Kari Dziedzic, DFL-Minneapolis, said in a statement that she's ready to work with Walz and Hortman on "lowering costs for families and ensuring strong schools, safe communities and a healthy climate."
One looming clash is whether Minnesota should send checks to residents. Walz has been calling for the payments for a year, but DFL legislators have not embraced the idea.
On Tuesday, Walz suggested that single tax filers whose adjusted gross income is less than $75,000 should receive $1,000 through an advanced income tax credit and that couples earning less than $150,000 should get $2,000. Families could also receive $200 for each dependent, up to three children. It's a slimmed-down version of his past proposal, where Minnesotans with a wider range of incomes would have qualified for the cash.
"People can make good decisions for themselves, and a portion of this surplus needs to get back in their hands," Walz said. The checks, he said, would not be taxable.
Lawmakers have also offered differing visions for Social Security tax cuts. Republicans have long pressed for eliminating the state's tax on the benefits, which the Department of Revenue estimates would affect 473,000 Minnesota filers. Some Democrats worry about the resulting $1.3 billion loss of state income over the next two years, a figure that would increase in the following two-year budget.
Under Walz's plan, about 350,000 households would see a cut in their Social Security taxes.
Besides the one-time payments and Social Security tax reductions, Walz previously unveiled plans for tax credits for families with children. Those credits would provide thousands of dollars to help with child care costs. He estimated all the tax cuts in his plan total $8 billion.
While seniors and families would see tax breaks, Minnesotans who see substantial capital gains would pay more under Walz's plan. Minnesotans who make $500,000 or more when they sell stocks, a home or other assets would pay a 1.5% surcharge and those getting more than $1 million would pay 4%. It's estimated the move would generate $661 million over the next two years.
"We think that just makes it fair," Walz said, adding that the revenue would be devoted to workers.
Other revenue-generating items in Walz's proposal include a payroll deduction to fund a paid leave program, higher vehicle tab fees and an increase in some Department of Natural Resources fees.
Republican legislative leaders criticized Walz for proposing a large increase in government spending and not enacting broader tax cuts.
"If we can't cut taxes now, when can we?" asked House Minority Leader Lisa Demuth, R-Cold Spring, noting the record surplus. "Minnesotans are expecting to have that back."
Senate Minority Leader Mark Johnson, R-East Grand Forks, said his caucus will not support "growing government by 25% on the backs of Minnesotans."
Walz stressed that many of his proposals are one-time costs, including the roughly $4 billion he wants to distribute through checks.
"We're not going to leave a deficit," he said.
His budget calls for recreational marijuana legalization and the creation of an Office of Cannabis Management to handle regulations for marijuana, hemp-derived products and medical cannabis. He also recommended grants to help people start cannabis businesses, more funding to treat and prevent substance use disorders, and expungement of nonviolent marijuana offenses.
"It is past time to safely legalize adult cannabis use," Lt. Gov. Peggy Flanagan said. "Prohibition doesn't work."
Walz also proposed more local government and county program aid and cash to buy up to 30 electric buses.
Tuesday's budget presentation was the culmination of a weeklong rollout by the Walz administration. The governor has been highlighting aspects of the budget with events at a school, business and fire department.
Some of the other big items in Walz's spending plan include more money for education, housing and the new paid leave program. He wants to automatically increase future education funding to match inflation and boost spending for special education, English language learning and free student meals.
He proposed more than $950 million for housing needs, including downpayment assistance, homelessness prevention and preservation of affordable housing. But while DFL legislators proposed $3.4 billion over the next two years for rent vouchers, Walz set aside just $10 million for rent assistance.
The estimated cost of creating his paid family and medical leave program is about $670 million, and the program would be funded through a payroll deduction that his administration said would fall on employers and employees.
Business groups oppose the plan. Laura Bordelon with the Minnesota Chamber of Commerce said the state should be lowering taxes and preventing mandates, "not proposing a 26% increase in government spending and top-in-the-nation taxes, including $1 billion in new payroll taxes, a metro sales area tax increase, a cannabis tax and the highest capital gains tax in the nation."
Walz also wants to use robust stadium reserve funds to pay off the debt on U.S. Bank Stadium in June, 22 years earlier than anticipated.
Staff writer Rochelle Olson contributed to this report.