Greetings from the St. Paul. So far, this month of February has proved to be a challenging month for commuting to and from work. Despite the snow, I hope you and your family have journeyed safely.
Newly installed Gov. Tim Walz issued his first budget proposal on Tuesday. The first stake has now been set in the process of setting a new two-year state budget.
The governor’s proposal totals $49.8 billion for FY 20-21. This represents an 8.6 percent increase in spending from the current operating budget for FY 18-19 (as reflected in the November 2018 Forecast) of $45.549 billion.
While we are still working to sort through the details of each budget component the governor is proposing, we can reasonably ascertain that his plan would raise the cost of gasoline, health care, and many of the other goods and services Minnesotans rely on. Overall, the Walz plan raises taxes by more than $3 billion over the next two years alone and $4.7 billion in FY22-23.
One of the more notable tax increases in the governor’s proposal is a 20 cents per gallon increase to the state’s gasoline tax. This is a 70-percent increase over the current 28.6-cent tax the state currently applies to a gallon of gasoline. The increase would be phased in over two years starting in April of 2020 and be fully phased in by September of 2021. As of now, the full 48.6 cents taxed per gallon would make Minnesota’s gasoline tax the fourth highest rate in the nation. Minnesota currently is 28th nationally.
As part of his budget proposal, the governor proposes scrapping the transportation funding law enacted in the last biennium. That transportation law which was enacted captures tax revenues from the purchases of auto parts and directs those tax proceeds to roads and bridges without raising taxes. Doing so would result in a return to the General Fund of over $450 million per year. The governor’s transportation proposal, raising the tax on gasoline by 20 cents per gallon, is really allocating one-third of this proposed new tax – or approximately $450 million of increased General Fund spending – by supplanting last year’s transportation law with his new gasoline tax increase.
Overall, the governor’s budget raises general fund tax revenue by $1.224 billion in FY20-21. The extension of the sick tax amounts to an additional $947 million, and transportation-related taxes account for another $907 million. This translates to a total tax increase of $3.078 billion.
The governor’s proposal increases taxes even more dramatically for the FY22-23 biennium, increasing general fund tax revenue by $1.43 billion, along with another $1.52 billion for the sick tax and $1.73 billion in transportation taxes, for a total of $4.7 billion in those two years alone.
High health insurance costs continue to be the focus of many discussions at the Capitol and all around Minnesota in recent months. Despite this, the governor’s plan does not extend Minnesota’s reinsurance program, which could likely cause rates on the individual market to soar once again, by 50 percent or more.
Minnesota experienced double-digit increases on the individual insurance market for a number of consecutive years. Enacted reinsurance last biennium caused rates to remain flat or even experience reductions during the last two years. Instead of extending reinsurance, the governor is seeking a 20-percent premium subsidy only for those who do not receive federal tax credits under the Affordable Care Act. This could very well mean that the administration is proposing to allow Minnesotans who are not covered under the ACA to ultimately pay higher premiums on the individual market. The bottom line is the governor’s proposal appears to not prevent rates from returning to the former unsustainable trajectory.
Now that the governor has issued his budget proposal, we await the state’s next full economic forecast to be issued at the end of this month. Once that information is made public, the House and Senate will then be able to proceed with bringing forward their own respective budget proposals, setting the wheels in motion to find agreement on a final plan before the Legislature is scheduled to adjourn in late May. We look forward to working with Gov. Walz to fulfill his campaign pledge of “One Minnesota,” including those who may be most impacted with tax increases to pay for “One Minnesota.”
Look for more on the budget as the session progresses and, as always, your input is welcome.
Rep. Jerry Hertaus