ST. PAUL — Gov. Tim Walz on Tuesday, Jan. 26, laid out his $52.4 billion proposal for Minnesota's two-year budget complete with additional funding for school programming to make up for learning lost due to the coronavirus and for families bearing the brunt of the pandemic.

The plan also includes a tax hike on households that make more than $1 million and on profitable corporations to offset new spending and a projected $1.3 billion hole.

The first-term Democratic-Farmer-Labor governor said the state continues its fight against the COVID-19 pandemic and lawmakers should boost resources to the groups facing the most hardship due to the pandemic.

"We're still deeply in the COVID crisis. The impact that it's had on families, on students, on small businesses, has been dramatic. We're not done with it yet," Walz told reporters as he unveiled the plan. "This isn't about trying to divide us. This is about a progressive taxation system that says, much is required of much given to some folks."

Walz acknowledged that the plan might have to change next month as state budget officials give a fuller picture of how much Minnesota is projected to take in in tax dollars and to spend. And it faced swift opposition from Republicans in the Legislature and from Minnesota businesses.

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"This isn't about trying to divide us. This is about a progressive taxation system that says, much is required of much given to some folks."

— Gov. Tim Walz


“This is a very large budget with a number of controversial provisions at a time of great uncertainty,” Minnesota Chamber of Commerce President Doug Loon said in a news release. “While some of the governor’s recommended investments have merit, the tax increases required to support this degree of ongoing spending will knock Minnesota out of competitive rankings and threaten our economic recovery."

Democrats, along with teachers, personal care attendants and labor unions, applauded the plan and said it would give a hand to hardworking Minnesotans.

The state is projected to face a $1.3 billion budget deficit in the upcoming biennium if the state continues spending as it does now without raising more money. Walz said his proposal would raise nearly $1.7 billion in new funds to help cover the gap and new spending.

The governor also proposed transferring more than $217 million from the current budget set to end June 30 to help fill the gap. And he proposed tapping $1 billion from the state's rainy day fund and $130 million in surplus funds from the state's Viking Stadium reserve fund.

Walz suggested raising tax rates on the top 0.7% of wage earners, imposing an additional capital gains tax, taxing foreign income repatriated to the U.S. and growing the state's corporate tax rate to bring in more money. The excess would help fund a tax credit for working families, as well as angel tax credits for Minnesota businesses, and make more Minnesotans eligible for lower tax rates.

The plan would also put $745 million more state funding into Minnesota schools to provide for summer school programming to combat learning losses from COVID-19 and distance learning.

"The impact you will see is a historic impact in education with a historic coalition that's ready to try and challenge the status quo to make a difference for all of our children, and the ability to continue to fight COVID-19," Walz said.

The proposal would also place another $1 tax on a pack of cigarettes and set a new tax on vaping devices. Walz said the moves could deter the use of tobacco products while Republicans said they would have an outsized impact on low-income earners.

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Lawmakers' one big responsibility this year is to craft and pass a two-year spending plan. And they have to get a budget done before July 1 to avoid a government shutdown.

That will mean developing a proposal that can appeal to both Democrats and Republicans in the state Legislature. And right out of the gate on Tuesday, GOP leaders said they wouldn't approve a plan that included tax increases.

“Thank God that Republicans have the majority in the Senate," Senate Majority Leader Paul Gazelka, R-East Gull Lake, said. "We do not need to raise taxes on anyone. That’s a line in the sand."

Senate Republicans have moved forward a bill that would require state agencies to cut 5% on administrative costs and they've said they'd look to the state's rainy day fund to fill the remaining budget hole in the upcoming budget.

Walz and Democratic legislative leaders, meanwhile, have said the pandemic and state actions to respond to it have disproportionately impacted students, working families and frontline workers, while wealthy Minnesotans and some corporations have seen their profits rise.

“Minnesota is a state of abundance — we have abundant natural resources, thriving corporations and nonprofits, a talented population, and higher income per capita than most states," House Speaker Melissa Hortman, D-Brooklyn Park, said. "We can and should use the budget to invest in Minnesota and in Minnesotans to ensure economic opportunity for everyone."

Following February updates to the state' economic outlook, Republicans and Democrats will craft budget priorities of their own before spending the next several months hashing out a compromise plan. Ultimately, the DFL-led House, GOP-led Senate and Walz must agree if a plan is to be signed into law.

Follow Dana Ferguson on Twitter @bydanaferguson, call 651-290-0707 or email dferguson@forumcomm.com