Gov. Walz pitches sales tax changes and trimming spending in budget proposal
ST. PAUL, Minn. — Gov. Tim Walz's budget proposal would make changes to sales tax collections and trim state spending in an effort to stave off a steep shortfall in future years.
"While we have a surplus now and we will have a surplus at the end of this year, long-term drivers in a few areas are going to have to be addressed so that we can continue to invest," Walz said during a news conference Thursday.
His $66 billion blueprint for the new two-year state spending plan — the must-do item for the legislative session — includes decreasing the state sales tax rate across the board by .075%, the first reduction in state history. The savings equates to 7.5 cents for every $100 spent.
But he also expands the sales tax base to include services lawyers and bankers provide but are exempt from the surcharge —loopholes, he said, that aren't fair.
The largest share of his proposed cuts target certain Medicaid and special education programs growing rapidly that are fueling what budget experts project is a $5 billion deficit in the next budget cycle. He wants the Legislature to cap automatic increases for disability services by 2% and have school districts pay 5% of the cost for special education transportation services; right now the state covers all of it.
"We're cutting it responsibly. We're making a difference in long-term fiscal stability without making Minnesotans sacrifice the quality that they're already getting," Walz said.
His announcement Thursday comes as lawmakers in the state House are still in a power dispute over who controls the chamber. House Democrats continued their boycott for the third day in a row.
Republicans in both chambers blasted the budget proposal, calling its provisions "budgeting tricks" that still raise taxes and fees on Minnesotans. The DFL-led legislature for the current budget levied a 1% sales tax increase for Twin Cities-metro counties to support transportation and affordable housing and implemented a 50-cent retail delivery charge on certain purchases over $100.
"Any tax increases are off the table. House Republicans will push for a responsible budget that makes life more affordable for families, not one that raises their costs and hurts our seniors," said Rep. Lisa Demuth, the Republican House Speaker.
The governor insists expanding what services are subject to sales tax is a matter of fairness.
"Lower and working-class people pay sales tax on everything they buy again. Why would you pay sales tax on your tires when you wouldn't pay it on adjusting your trust fund or whatever it may be?" he said.
Walz's proposal also makes new investments, including support to implement his anti-fraud package to crack down on theft of public funds. That plan includes a pilot program to use artificial intelligence to detect potential problems early and adding staff to the attorney general's Medicaid Fraud Unit.
If approved by the Legislature, the governor's budget keeps $2.1 billion on the bottom line for the next two-year budget and a surplus in the next biennium, which state experts predicted in their last budget forecast would leave the state in the red.
There will be an updated forecast next month that will be the basis for budget discussions at the Capitol.