Minnesota's divided Capitol strikes multibillion-dollar end-of-session budget, tax deal

Minnesota's top political leaders have agreed to use historic revenues pouring into the state to cut taxes by $4 billion over the next three years while pumping an equal amount into classrooms, health care and public safety initiatives.

They would use future projected revenue to help leave another $4 billion unspent in anticipation of harder economic times, according to the "framework" of a deal unveiled by Gov. Tim Walz and legislative leaders Monday.

"What came together in a compromise serves a much broader group of constituencies," Walz said, appearing alongside leaders of the GOP-controlled Senate and DFL-led House. "In a time of historic surpluses, in a time of economic uncertainty, the prudent and mature approach to this was to recognize Minnesotans need money back in their pockets right now."

But details of that framework were scant, leaving legislators one week until the 2022 session adjourns to resolve the session's biggest debates over tax cuts, school funding and how to curb rising violent crime in the state. Legislators must adjourn the regular session May 23, and Walz has said he's not interested in calling them back for an overtime session to finish their work.

"We have the framework of this agreement in place, but there is still a tremendous amount of work ahead," said Republican Senate Majority Leader Jeremy Miller, who is directing House and Senate committee leaders to focus on areas where there's agreement. "There is not much time to get this done before the end of the session."

Leaders had no details on what's included in a $4 billion tax measure, which will likely be the final proposal to come together before lawmakers adjourn. With Minnesota's budget surplus projected at nearly $9.3 billion, Republicans have been pushing throughout the session for permanent tax cuts and have called for a reduction of the lowest income tax bracket and the elimination of state taxes on Social Security income.

Democrats have favored a smaller package of tax rebates and credits, including one-time "Walz checks" that are a priority for the governor. All of those are still in the mix as joint House and Senate committees begin to craft final proposals this week.

Lawmakers passed a two-year state budget last summer, so they don't have to do anything this year, but both sides want to accomplish something before heading out onto the campaign trail. Walz's job and all 201 legislative seats are on the ballot in November.

House DFL Majority Leader Ryan Winkler said they negotiated to limit the overall size of tax cuts in the deal while pushing for more spending on education and health care as the state rebounds from the COVID-19 pandemic. In April, legislators also struck a multibillion-dollar deal to replenish an unemployment insurance fund and send checks to frontline workers.

"We are looking at an agreement today that will help Minnesotans better afford the cost of living, to help them afford child care, housing," Winkler said. "We're looking at a budget agreement that will help Minnesotans recover from two of our toughest years in our state's history."

But he said two top House priorities — enacting paid family medical leave and earned sick and safe time — are not included in the deal's framework.

Within the new proposed spending, classrooms will get $1 billion, and leaders agreed to spend $1 billion for health care and human services over the next three years. Leaders said they have set aside $450 million for new spending on public safety.

Senate Republicans want tougher sentences for carjackers and repeat offenders, and grants to recruit more police officers. House Democrats are pushing a proposal heavy on grants to community nonprofits and officer outreach in high-crime areas and want to focus on recruiting a more diverse police force.

"We have not, as of this time, resolved any of those issues of where that money would actually go, or what would it be spent on," said Sen. Warren Limmer, R-Maple Grove, in joint House and Senate public safety hearing Monday. "We'll be continuing to have discussions."

The tentative agreement also includes a $1.4 billion package of construction projects in a borrowing bill, as well as $1.5 billion for "additional investments."

Proposals for education and health and human services take the longest to process and must be agreed to first. Republicans want to spend $1 billion on pay raises for long-term care workers, personal care assistants, group home employees and services for people with disabilities; Democrats propose a smaller human services package that includes a pay rate increase for personal care assistants.

Whether they can meet those targets set out by leaders is a different matter, particularly on education. Republicans and Democrats remain divided on how best to support schools while addressing the state's wide achievement gap and literacy rates.

A Monday morning House and Senate education meeting ended with Sen. Roger Chamberlain, R-Lino Lakes, packing up his things as Rep. Jim Davnie, DFL-Minneapolis, pressed him on when the House might see a new education funding proposal from the Senate.

Davnie said he and his fellow education committee chair had agreed Sunday to draft proposals in light of the new budget agreement — and that his staff worked late to hold up their end of the deal. Chamberlain countered that the Senate last week submitted a proposal that the House ignored.

"Give us your offer," Chamberlain said. "I've been to this dance before, in case you've forgotten."

With a two-day deadline from legislative leaders to resolve differences between the House and Senate budgets, "delay is not on the table," Davnie said.

"I would like to see this conference committee proceed, but if the Senate is unwilling to align with its agreements, I think we're going to have trouble with that," he said.

Senate DFL Leader Melisa López Franzen of Edina said the House education proposal is more comprehensive and includes funding for special education and mental health supports. The GOP Senate's budget includes $30 million for a literacy initiative and $700,000 for the state to hire reading coaches.

"We have a very bare bones bill passing from the … Senate Republicans, so I think they are going to move more in our direction," she said.

Staff writer Jessie Van Berkel contributed to this report