Gov. Tim Walz's budget aims to address COVID's uneven impact

Gov. Tim Walz said the coronavirus has not decimated the priorities he campaigned on — although he's hoping the new administration in Washington can help meet some of his goals.

The former teacher took office aiming to be an "education governor," with plans to bolster schools, repair crumbling roads and bridges and expand health coverage. But he rolls out his second two-year budget in a landscape that's dramatically different from two years ago, as the pandemic batters the economy and distance learning widens state educational disparities that were already among the nation's worst.

"We're not going to scale down a lot of the things that we cared about," Walz said in an interview ahead of Tuesday's budget rollout. "I think we're going to get more help from the federal government. That takes some of the pressure off states to do it alone."

With Democrats now in control of Congress and President Joe Biden in the White House, the DFL governor is looking to Washington for action on some measures he hopes will benefit Minnesota. Walz has pushed — without success — for a "OneCare" program to allow Minnesotans to buy into a public health insurance option, as well as a 20-cent gas tax increase to put more money into Minnesota's transportation system. He said he is hopeful the federal government will expand the Affordable Care Act to add a public option and will provide more transportation funding.

In Minnesota, Walz must strike a deal with the nation's only politically divided Legislature to pass the next two-year budget. And they might have to make up for a projected $1.3 billion deficit as they weave together competing priorities.

Both Walz and Republican Senate Majority Leader Paul Gazelka said they are optimistic the deficit projection will improve when budget officials provide an update in February. Democratic House Speaker Melissa Hortman was more cautious, saying consumer spending that buoys the economy is tied to the speed of the COVID-19 vaccine rollout.

Even if the shortfall shrinks, the two parties will have to reconcile very different visions for how to move Minnesota out of the economic slump.

Gazelka, of East Gull Lake, and other Republican legislators have suggested for months that the state look at cutting 5% from the budget of each of its 23 agencies.

"It was amazing what you can find if you look" for savings, Gazelka said. He said state government has been growing for the past decade and noted that in 2011, agencies found places to trim as the state faced a projected $5 billion deficit. Then-Gov. Mark Dayton was pushing to raise income taxes on the wealthiest 2% of Minnesotans, but that was left out of the final deal and state leaders largely closed the hole through borrowing, budget shifts and cuts.

Dayton ultimately persuaded the Legislature to raise income taxes on the state's highest earners, and the state entered a period of back-to-back budget surpluses.

This time, the state has about $2.4 billion in its reserves that could help smooth over a budget gap.

But Walz hinted that tax increases on wealthy Minnesotans will also be part of his equation.

"Families, especially those making $1 million or more, the numbers are pretty staggering how much better they did during the pandemic," Walz said.

Gazelka countered that Minnesota already has among the highest tax rates in the nation for the wealthy.

"It's not like we haven't already done that," he said. "What I'm focused on is living within the resources we have and not asking for tax increases on anyone."

The Senate GOP leader said the top action they can take to spur the economy is further reopening businesses that Walz has restricted during the pandemic. The governor currently allows retail businesses to be fully open, but bars, restaurants and personal service providers, such as salons, are limited to 50% capacity. Gyms and entertainment venues, like movie theaters, can operate at 25% capacity.

"That's their political ideology: It's when there's a deficit you cut, and the wealthy and corporations shouldn't have to pay their fair share," Hortman, of Brooklyn Park, said of the GOP. "They just believe that wealth will trickle down, despite 40 years of evidence to the contrary."

Neither Hortman nor Walz would provide specifics about upcoming DFL tax proposals. Hortman noted it was early in the budget process; the House doesn't offer its full spending and revenue plan until late March. But she said state leaders have continued to talk about increased tax collection from corporate foreign earnings, which Democrats pushed for two years ago but failed to pass.

Walz said his budget will prioritize helping students, working families and small businesses.

Denise Specht, with the teachers union Education Minnesota, urged state leaders to increase taxes on wealthy residents and corporations to support students, but said that goal might take longer than she had hoped when Walz initially took office.

"COVID-19 just is like a flashlight," Sprecht added, noting that it further illuminated issues within the educational system, including racial disparities. Walz said a diverse group of stakeholders has been meeting for months to try to come up with a plan to address educational gaps. They plan to release a report Monday.

Walz and Hortman also said they want paid family and medical leave to be part of the next budget, saying the pandemic has shown the measure is critical.

That push, and any additional business taxes, concern Minnesota Chamber of Commerce President Doug Loon. He said Walz has supported some mandates that worry employers, and it doesn't seem the governor has set aside those goals during COVID-19.

"I don't think any of them have fallen by the wayside. I think they are all out there yet," Loon said of proposals like paid leave. He said that would take away employers' flexibility to design benefit packages and put the state at a competitive disadvantage in attracting business.

"During this COVID-19 economic downturn, adding these types of mandates and restrictions on business only constrains the ability for us to be nimble and for us to come out of this economic downturn successfully," Loon said.

However, Walz and business community members could find common ground on helping small businesses — one of the governor's top priorities.

Like people, "not every business was impacted the same way by COVID-19," Walz said, and he wants to support those hit the hardest.

Jessie Van Berkel • 651-925-5044