Governor Tim Walz released revisions to his budget proposal following a significant change in the state’s fiscal outlook in the February 2021 budget forecast. Governor Walz released an initial budget proposal on January 26, based upon the November budget forecast projection of a $1.3 billion budget shortfall. The February forecast showed a positive balance of $1.2 billion in primarily one-time dollars. The budget proposal remains focused on helping Minnesota recover from COVID-19, including providing significant funding to help students recover from the loss of learning that occurred over the past year through summer school.
The revised budget proposal includes a reduced proposal for tax increases, including removing a proposal to increase sales taxes on cigarettes, as well as a lower corporate tax rate than previously proposed. The total tax increases are lowered from $1.6 billion in the original proposal to around $670 million. Also, the governor’s revised budget would no longer rely on funds from the state’s budget reserve.
Governor Walz also proposed tax relief on Paycheck Protection Program loans amounting up to $350,000. That proposal would provide relief for approximately 90% of businesses that received loans. The revised proposal would also forgive taxes on up to $10,200 of surplus unemployment insurance payments provided for in the federal CARES Act in 2020. In total, the revised budget increases the governor’s proposed tax cuts for working families and small businesses to over $1 billion.
The governor’s budget is expected to see a third revision as the state reviews the funds that will be available to the state from the American Rescue Plan (ARP) that President Biden signed into law last week. The ARP is expected to provide around $2.6 billion in federal dollars for Minnesota.