Where Minnesota’s $17.5 billion surplus went: Expanding the welfare system

After E-12 Education, Health and Human Services (HHS) is Minnesota’s next biggest general fund expenditure. In the 2022-2023 biennium, for example, HHS took up nearly thirty percent of all general fund dollars, more than triple the third-biggest category — Property Tax Aids and Credits (PTAC).

HHS spending includes funding for both the Department of Health and the Department of Human Services. Do not be deceived by the joint title, however. The majority of spending under Health and Human Services goes to the Department of Human Services, which houses various assistance programs, including Medicaid, childcare assistance, welfare payment checks, and Housing assistance, among others.

In the February 2023 forecast, HHS spending was forecast to cost the state $17.8 billion in the 2024-2025 biennium (not including inflation). Thanks to the newly passed budget, that massive budget just grew an additional $2.5 billion (not including inflation). And in the 2026-2027 biennium, Health and Human Services gets an extra $2.3 billion up from the $19 billion in the February 2023 forecast.

Figure 1: Spending (in billion dollars)

Source: Minnesota Senate

Where the money is going

Among the myriad spending programs, the $2.5 billion includes hundreds of millions for childcare assistance; hundreds of millions for childcare providers; tens of millions to increase the benefit level for people who receive cash through the General Assistance (GA) program; tens of millions to offer a 12-month continuous Medical Assistance coverage to children regardless of whether they remain eligible or not; tens of millions to provide dental benefits to adults in the Medical Assistance program.

Housing assistance benefits under the state’s main cash program — the Minnesota Family Investment Program (MFIP) — will be adjusted for the cost of living, costing millions of dollars. Homeless youth will get cash under a new pilot stipend program that will cost millions in the next biennium. Some non-immigrants will also be eligible o to receive cash under the MFIP program raising costs of the program by some other extra millions.

Currently, some individuals who are on the state’s Medicaid program — Medical Assistance — are required to contribute. That is all about to change. The State government will spend millions more to eliminate any type of cost-sharing in the Medicaid system.

Starting in 2026, undocumented Minnesotans can enroll in MinnesotaCare — a program that subsidizes health insurance for low-income people. In the new budget, this will cost about $160 million in the next four years. And while currently only Minnesotans with income less than 200 percent of the Federal Poverty Level (FPL) are legible for MinnesotaCare, under the newly passed HHS omnibus bill, Minnesota will offer a public option. This means that Minnesotans with incomes over 200 percent of the FPL will be eligible to enroll in the program, starting in 2026. The new HHS budget has no numbers for the public option, so no one knows how much it will cost until it kicks in. The Commissioner of Human Services has $2.5 million to do an economic impact on how much the program would cost before it takes effect.

Suffice it to say, Minnesota’s massive welfare system is about to get even bigger.

Minnesota already spends a lot on welfare

Growing the welfare state is problematic for a few reasons. For one, the DHS already takes up a significant chunk of our budget. In fact, when federal funds and all other funds are considered, HHS takes up about half of all state spending. More spending puts pressure on other, potentially more vital, government services, like infrastructure.

Minnesota additionally, already significantly outranks the rest of the country on welfare spending. In 2020, for example, our state spent about $38,000 in public welfare per person below the federal poverty level. This was nearly double the national average of $21,000.

Figure 2: Public welfare spending per person below the Federal Poverty level, 2020

Source: Calculations based on data from the US Census Bureau

Certainly, extra Medicaid spending by the federal government during the pandemic contributed to states’ bloated budgets on welfare. But even in 2019, and years prior Minnesota was a leader in welfare spending. That spending has only grown.

Other concerns

Secondly, welfare spending is already expected to grow due to our aging population. Generally, the majority of welfare spending goes to medical assistance programs for disadvantaged groups, like the elderly and the disabled. Healthcare costs, however, have only been on an upward trend. Moreover, the United States is experiencing an aging population which will push healthcare costs even higher, thereby bloating spending on welfare.

To make it even more risky, the majority of Medicaid spending — which makes up a big portion of welfare spending is currently provided by the federal government through the use of matching rates. If by any chance the Federal government was to get less generous — perhaps to deal with the debt crisis —  and reduce these matching rates, Minnesota would possibly be stuck with billions in welfare spending, all else constant.

Spending on assistance programs, moreover, does not stop with the DHS. The Budget for Housing in the next biennium, for example, includes hundreds of millions of dollars for downpayment assistance; rental assistance; numerous housing grants among others. And in the Omnibus tax bill, nearly $1 billion in each of the next bienniums goes to the child tax credit — which phases out at incomes over $35,000. As John Phelan has outlined, the bottom 20 percent of all Minnesotans do not pay income taxes. Refundable tax credits to this group amount to nothing more than welfare checks.

You get $260 and they spend billions on welfare

As I wrote in March, if Minnesota’s $17.5 billion surplus were to be divided equally among all taxpayers, each would approximately get $5,800. The average Minnesota family, however, will be lucky to get anything back in this new budget that Walz and the DFL passed.

While they are giving you a one-time check of $260 — that is if you even qualify — they are expanding Minnesota’s welfare system to an unprecedented size. And it’s all on your dime.