Based on the February forecast and the additional $1.5 billion in state surplus arising out of it, Governor Walz increased his supplemental budget proposal last week to augment an already ambitious fiscal agenda. In addition to several budget enhancements to items included in his original proposal, the revision includes 42 new proposals generally in the $1-10 million dollar range, nearly one-third of which are in the Health and Human Services area.
Notable revised/new proposals include:
The table below provides a summary by major spending area (all totals in thousands). The revised supplemental budget reflects a $9.01 billion increase in FY22-23 spending over current law and a $1.6 billion increase over the Governor’s initial supplemental budget presented in February. Approximately $239.5 million in lower biennium tax collections – mostly due to federal conformity – are added to the proposed spending increases to arrive at the $9.25 billion general fund impact.
Source: General Fund Balance Analysis, MMB 3/17/22
The General Fund impact would consume essentially all of the current surplus (leaving a $257,000 budgetary balance heading into FY24-25) and about 89% of available resources when factoring in unused federal fiscal recovery funds. This revision increases out-biennium net spending tails by $333.5 million to $5.83 billion — which consumes 93% of the currently forecasted FY 24-25 structural balance. Using the February forecast for FY 22-23 as the baseline, the Governor’s revised supplemental budget represents 16.2% biennium-on-biennium projected spending growth for FY 24-25.
A couple of questions arise:
Do We Care About Forecast Risk or Not?-- It’s worth revisiting a couple of the interrelated risks identified by MMB in their release of the February forecast:
How all this uncertainty will actually play out is anybody’s guess. But this is a supplemental budget that seems to take these risk factors quite casually.
Are these real governing agendas? -- Given the make-up of the Legislature, whatever comes out of this session will be unrecognizable compared to what the Governor is proposing. The same can be said of the Senate Republicans' proposals which starts with $8 billion of permanent tax relief and will likely go up from there. The practical purposes of everyone’s positions right now are electoral messaging and perhaps providing an abundance of items to serve as cannon fodder to arrive at some kind of negotiated agreement.
However, it does raise the question, if either party controlled all three lawmaking bodies and actually had to govern under these proposed budget frameworks, would we still be seeing the proposed magnitude and scope of fiscal transformation these agendas represent? With divided government, it can be politically expedient and convenient for everyone to propose budgets they know won't pass. But if these bipolar visions of government are a statement of governing intent, this November promises to be one of the most fiscally significant and consequential elections in state history.