Minnesota Gov. Tim Walz aims to invest in education, health care, communities

Money for schools and housing. New money to offset costs for local governments. Tax credits for startup investors.

Gov. Tim Walz has been unveiling pieces of his budget proposal and reiterating top priorities — education, health care and "community prosperity" — as he prepares to debut his vision for the next two years of state spending. Tuesday's budget proposal rollout will also detail where the cash would come from.

That's where things get complicated, and where Walz faces a new test.

Minnesota has an economic cool-down on the horizon, state economists predict. The last two monthly revenue snapshots came in well below estimates, signaling Minnesota's $1.5 billion budget surplus could easily shrink.

"I'm not under any illusion here. I'm sure I will disappoint my friends, in some cases, I will disappoint those who don't agree with me," Walz said. "The hard part of that budget was the stack that was dozens of pages long that were the nos."

Senate Republicans last week renewed their opposition to an increased gas tax or extending a tax on health care providers.

That's exactly where Walz, a Democrat who campaigned on an expansive list of spending priorities, plans to turn.

The governor has been laying the groundwork for his taxing argument at recent events. Organizations have ranked Minnesota among the top 10 most-taxed states. For many people, Walz said, the goal is to get off that list.

"But where do you want to keep us in other categories in the top 10?" he asked the crowd at a TwinWest Chamber of Commerce event. "In many of the categories, from education attainment to per capita incomes, to life expectancy, to happiness, we rate in the top 10. Now we can have an honest debate if there is a direct correlation between taxation and those rankings. I would make the argument, yes, in some cases."

When courting voters, Walz promised more spending on education, from prekindergarten to higher education. He talked about expanding rural broadband and access to child care, and allowing all state residents to buy into the MinnesotaCare health care program.

This proposal will support those goals, Walz said, but he also had to make the bottom line work. Since taking office, he said he has spent weeks going line-by-line through the budget — expected to total more than $47 billion — and making difficult decisions.

One of Walz's closest political allies, the teachers union Education Minnesota, held a news conference Friday at the State Capitol to urge the governor to stick to his campaign promise of "fully funding" education. Class sizes are growing, schools are being forced to cut programs, and pay for teachers and school professionals is insufficient, educators said.

"We are continually asked to solve the districts' problems on our backs, and our backs are breaking," said Shelby Erickson, who teaches first grade in St. Cloud.

The union proposed Minnesota spend an additional $3.7 billion to $4.3 billion over the next two years, which they said should come from corporations and wealthy taxpayers.

Walz said he will make "the historic down payment to getting us there," but that boosts to education funding won't happen all at one time.

Some funding for his priorities could come from aligning the state's tax code with the federal law, Walz said. He believes corporations that "did very well in the federal tax bill" could pay more.

Other allies are lining up with their requests.

The Association of Minnesota Counties was at the Capitol lamenting the lag in state assistance and calling for approximately $30 million more in annual aid for counties and local governments.

"We have had to raise the levy to recover those dollars, because they are necessary for the core services we are delivering," Lac qui Parle County Commissioner Todd Patzer said.

Walz has vowed to include the $30 million in his budget and noted a few other pieces Minnesotans can expect. His budget will support gun violence prevention legislation, namely background checks and protection orders, which allow the court to temporarily restrict someone's gun access. He also wants to reinstate tax breaks for investors who back startup businesses.

He will also announce his support for a new infrastructure borrowing package this year but will roll out details of the bonding proposal later. It will include money for housing and higher education infrastructure, he said.

"We have a responsibility to put forward a large bonding bill," said House Speaker Melissa Hortman, D-Brooklyn Park. She expects that the House Democrats' budget proposal, due March 25, will be very similar to the Walz plan. The Senate has until March 30.

One of the biggest debates this year will be whether to renew a 2 percent tax on health care providers set to expire at the end of the year, Senate Majority Leader Paul Gazelka, R-Nisswa, said. He said Republicans are "exactly opposite" Walz, who wants to re-up the tax.

If the tax ends, it would leave a $992 million hole in the budget for 2022 and 2023, according to Minnesota Management and Budget's latest estimate. Gazelka said the state should reduce growth in health and human services spending to make up that difference.

A shrinking surplus could further complicate the budget debate.

"I whisper in [Walz's] ear every other day that the forecast may be negative," Management and Budget Commissioner Myron Frans said.

Given the "clouds on the horizon," Senate Minority Leader Tom Bakk, D-Cook, said lawmakers should emphasize one-time spending in areas like university infrastructure, broadband or school safety improvements.

Minnesotans will learn a lot about their new governor over the next few months, Bakk said, as lawmakers shift from setting goals to compromising.

"Of all the things that were said on the campaign trail," Bakk said. "Now when we get in the confines of actually negotiating a budget … what are the things he feels really strongly about?"