Minnesota Gov. Tim Walz's budget would increase fees on boating, opioids, water users

Gov. Tim Walz's budget proposal would impose a 20-cent-per-gallon gas tax increase that he said would help create the finest transportation system in the world.

With less fanfare, however, Walz's budget would also tax drivers while they are at their local driver and vehicle services office, hitting Minnesotans with a $2 "transaction fee" plus another $4.50 to get a driver's license and $2 for a license plate.

The Walz budget includes $148.3 million worth of these new fees and fee increases, on everything from boat owners to companies that sell prescription drugs.

Myron Frans, the commissioner of Minnesota Management and Budget, called it a "modest package" of fee increases. He acknowledged that some of the fees — such as those on assisted living facilities and drug companies — are "aggressive" but said they are needed pay to implement new regulations.

In other cases, fees have not been increased in decades and raising them will improve customer service, said Frans, who is Walz's top budget official.

The fee proposals come amid an increasingly tense budget year for Walz and legislators, who saw a projected surplus shrink by nearly $500 million since November.

Walz's two-year budget proposal — which he unveiled last month but is expected to update in the coming days to reflect the new fiscal reality — approaches $50 billion. Republicans are already digging in, opposing Walz's gas tax proposal and another to extend a tax on health care providers.

The stakes of Walz's first budget are high after he won a landslide victory in November, fueled by big promises on school funding, health care, transportation, local government aid and a slew of other priorities.

Elected officials have been known to prefer fees to taxes. Former GOP Gov. Tim Pawlenty increased cigarette taxes but called it a "health impact fee" — a semantic shuffle that he argued didn't violate his pledge to not raise taxes.

The current budget — the final one of Gov. Mark Dayton — included $161 million in fee increases, though $65 million of that was on railroads for safety improvements.

House Republican Minority Leader Kurt Daudt, R-Crown, said the fees are a tax increase by another name. "It's taking more money out of Minnesotans' pockets," he said. "It almost becomes an avalanche of fees, and how much are people willing to take?"

A significant portion of the fees would fall on health care companies facing new regulations. Walz proposed $27.5 million on assisted living facilities to pay for inspections in a new licensing system after the Star Tribune reported thousands of victims of assault, theft and sexual assault in these facilities.

About 41,000 Minnesotans reside in 1,245 assisted living facilities.

Walz would also collect nearly $50 million from the pharmaceutical industry for the right to sell prescription opioids and other controlled substances, with the money going toward enforcement, treatment and prevention as Minnesota continues to battle the opioid-addiction epidemic.

Taken together, the two health care items comprise more than half the fee increases.

Daudt charged that fees on health care will merely be passed down to consumers, thereby contradicting Walz's promises to lower health care costs for Minnesotans.

He also said fees on child-care providers will hurt an industry already claiming that burdensome regulations are hurting business.

The fees will hit more than health care companies.

The new fees for drivers will help support the upgrades and upkeep of the Minnesota Licensing and Registration System, the troubled program known as MNLARS that is a decade in the making and so far has cost Minnesotans more than $100 million. Frans said the fees will help reduce wait times for Minnesotans.

Every household connected to a water system pays just shy of $6.50 to maintain water quality. The Walz budget would increase it to $9.72, a 50 percent increase of a fee that hasn't changed since 2005. "With water issues becoming so important, we need to do the testing," Frans said.

Canoes, kayaks, sailboats and paddleboards must be registered if they are longer than 10 feet, and Walz is proposing to increase the fee from $10.50 to $15.25. The 45 percent increase — the first since 2006 — will help the Department of Natural Resources maintain boat launches and other facilities, Frans said.

Sportsmen favor fees — including a recent round of fee increases on hunters and anglers, Frans said. "They recognize that if they don't pay these fees, the quality of the facilities will go down."

Licensing fees will go up for pharmacists, social workers, dentists, psychologists, optometrists and teachers, with the money going to the boards that regulate them and have requested the increases.

One industry is getting a break, however: To stop the flight of martial arts tournaments to Wisconsin, Walz would reduce the "combative sports fee."