Lawmakers have emerged from the June special session with a newly minted budget, attached with a price tag sitting at $52 billion — the first state two-year budget to surpass $50 billion.

Both Republicans and DFLers billed the budget as a concerted push to support struggling citizens, institutions and companies in the wake of COVID-19.

In the lead-up to the spring Legislative session, Republican lawmakers warned Minnesota needed to tighten its belt and make difficult cuts to balance the budget during a time when taxpayers are vulnerable. While total expenditures are hefty, they’re structured to boost struggling Minnesotans as the state recovers, said Senate Majority Leader Paul Gazelka, R-East Gull Lake. The state is in a good position to make these commitments, noted Gazelka, who pointed to higher than expected tax revenues, formidable funding reserves in place, as well as billions in federal aid lawmakers earmarked to alleviate pandemic-related stressors on Minnesotans.

Lawmakers now need to look to the future, said Gazelka, who pointed to the emergence of widespread remote employment, flex schedules and labor shortages as developments presenting new challenges — or, in some cases, new opportunities — for the state to contend with as it recovers from the pandemic.

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“In the overall budget, we focused on the employee and the employer. Now that they can do a lot of this work from home, do we need as big a footprint of public buildings?” Gazelka said. “How do we use the resources we have, knowing now that many workers would prefer to work from home? We’re seeing a big shift, even at the Capitol.”

The state of Minnesota has a savings account that’s expected to grow to about $2.4 billion. Tax revenues are about $1.8 billion more than original estimates.

All in all, COVID-19 and its aftermath remain a dynamic and sometimes unpredictable situation for lawmakers, said Gazelka, who noted it’s hard to predict how much and where federal aid will go, as well as how the state economy will shape up in coming months.

“Near the end of the regular session, we got $3 billion that came directly to the state of Minnesota,” Gazelka said. “So we had to figure out, how do we spend this money and control future spending? The $3 billion (in federal aid) could be spent over four years. We spent some of it in this budget, but we tried to watch future spending.”

One major area of concern going forward? Inflation, said Gazelka, who pointed to rising building and material costs as a result of COVID-19.

The state is looking at a $1.28 billion budget deficit four years down the road, but for now the state is steady, Gazelka said, and lawmakers will hash out that gap during coming Legislative sessions.

In the meantime, lawmakers are lauding the results of the spring session and June special session as a victory for employers and employees after close to a year and a half of hardships through no fault of their own. Notably, with the exception of smaller, auxiliary items, Gazelka said divisive issues like law enforcement reform were largely left off the table for now.

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Rounding out the budget, lawmakers passed:

• A K-12 education bill that contains the largest increase in the state's per-pupil funding formula in 15 years. This increase is marked by 2.5% in the first year and 2% in the second, amounting to about $296 per pupil for school districts to spend as they see fit. Republicans have hailed these provisions as a means to keep decision-making powers in the hands of local districts and school boards.

• A plan, which will be incorporated in the larger bonding bill, to pay $250 million in bonuses from federal aid to frontline workers who risked their lives in the pandemic, which would form provisions of a bonding bill lawmakers look to finalize in an anticipated special session this September. In addition, $200 million in projects were approved through this measure.

• A tax bill that accounts for nearly $1 billion in tax relief, of which roughly 80% is specifically intended for COVID-19 relief. Businesses that received forgiveness on Paycheck Protection Program loans will be allowed to fully deduct the amount on their state income taxes, while workers who collect unemployment insurance payments will be able to deduct them up to $10,200. This last provision will benefit roughly half a million Minnesotans with an average $500 tax cut.

• An employment and economic development bill that includes $70 million to expand broadband across the state, as well as $150 million in assistance for businesses hurt by the COVID-19 pandemic and civil unrest following the police killing of George Floyd.

• Resolutions in the House and Senate to end Gov. Tim Walz’s peacetime emergency powers, which have been in place since March 2020. Ending these emergency powers, Gazelka noted, was a key point of budget negotiations between DFLers and Republicans.

In terms of rolling back government aid, Gazelka was critical of the boosted unemployment benefits, blaming them for an ongoing worker shortage nationwide. He was also critical of the state’s eviction moratorium, noting lawmakers were moving to end the moratorium that allowed renters to live rent-free for more than a year, while granting little support for property owners who still had mortgages, property taxes and other expenditures to cover.
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To help pay for the budget, Walz proposed a number of tax increases primarily targeted toward higher income earners. These include an income tax hike on those who earn more than $1 million per year, a tax on capital gains in excess of $500,000 per year, as well as higher corporate taxes. There’s potential to raise taxes on vaping products and cigarettes.

“There's not a tax (Walz) hasn't tried. We just say no,” Gazelka said. “If you compare our budget to say, Colorado or Wisconsin, we're higher than they are. Why do we have to spend so much on government? It's a balancing act, making sure that we have the resources for the individuals and the folks that we're taking care of, but at the same time, not spending too much so that it drives people out. It’s a constant battle.”

GABRIEL LAGARDE may be reached at gabe.lagarde@brainerddispatch.com or 218-855-5859. Follow at www.twitter.com/glbrddispatch .