Capitol Watch: Will Gov. Walz and the legislature Give It Back?

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The state has a surplus of $17,600,000,000. Let that sink in. That’s 65% of the annual state budget. Over $12 billion of the surplus is already in the bank and ready to “spend.”

The call to Give It Back has never been more necessary.

You have to go back to February 2020 to figure out how we got to this point.

  • Before the pandemic hit, the 2020 February forecast projected a surplus of $1.5 billion.
  • Minnesota Management and Budget adjusted that forecast in June to predict a $2.42 billion deficit, after the government shut down the economy due to the pandemic.
  • By November of 2020, the forecast turned back into a $641 million surplus.
  • That surplus grew to $7.7 billion in November of 2021 and then $9.3 billion in February of 2022.
  • Because the 2022 session ended with no agreement to spend or return the surplus, it grew to today’s $17.6 billion figure.

With the federal government printing money and sending billions to Minnesota households, businesses, and governments, it’s no surprise that some of that money cycled through the system and ended up in state coffers. The real losers in all of this are the next generation of U.S. taxpayers who will be saddled with this debt.

A golden opportunity for Walz

In the meantime, Gov. Walz and the new DFL-controlled legislature have $17.6 billion to work with, $12 billion of one-time money and $6.6 billion projected to be there biennium after biennium. Elections have consequences.

At his press conference reacting to the surplus, an ebullient Walz used his fast talking, self-interrupting cadence to build expectations for a long list of proposals. He mentioned Walz checks of $1000 per taxpayer but said he could go higher. He said he would eliminate the tax on social security income, but not for the rich. He promised more funding for K-12 schools, childcare, housing, paid family leave, roads and transit infrastructure and a robust bonding bill.

“We can do all of these things,” said Walz. “It’s a golden opportunity.”

Weak Republican response

The Republican message on the surplus was the epitome of low expectations. “With a $17.6 billion surplus, there should be no reason to raise taxes.” Not raise taxes? That’s the best we can expect? Senate Minority Leader Mark Johnson, House Minority Leader Lisa Demuth, GOP Chair David Hann and business leader Charlie Weaver all echoed the “don’t raise taxes” talking point.

Sadly, Republican’s low expectations were met by Gov. Walz as he refused to rule out future tax increases even in the face of this historic surplus. One challenge DFLers face is their promise to deliver a paid family leave program modeled after the unemployment insurance system. In order for paid family leave to work, a .3% tax on every employee and employer will be needed to build and sustain the pool of money that will be used to cover salaries of those out on paid leave. Democrats could use surplus money to seed the paid family leave fund, but they still need the new payroll tax to sustain the fund over time.

Walz has also not given up on his favorite tax increase, the gas tax.

“I do think we need to put Minnesota on a path to think about some of these long term funding needs around either transportation, whether it’s transit or roads and bridges.”

Translation: I want to raise the gas tax.

Walz also repeated the lie that his administration has never raised taxes. As we’ve written before, Walz and the legislature raised the provider tax in 2019 to help close a billion dollar hole in the budget. No one in the press and few in the Republican Party will call him on this lie because they’ve collectively agreed it wasn’t actually a tax increase (quack!).

It sounds counterintuitive, but Legislative sessions with big surpluses are never good for Minnesota taxpayers. There is no pressure to reform state government. There is no incentive to innovate. No one is looking for waste, fraud and abuse. There is no reason to say “no.” Expect the 2023 session to deliver a one-time rebate and perhaps a modest cut in taxes on social security income. But after that, billions will be added to the base budget in new spending programs that will be impossible to sustain once the inevitable surplus turns into a deficit. Hold on to your wallets.

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