Minnesota's surplus shrinks, leaving tough decisions ahead

ST. PAUL, Minn. (FOX 9) - Negotiations over a gas tax increase and the state budget got much tougher Thursday as Gov. Tim Walz and state lawmakers learned they will have far less money to spend.

The balance of Minnesota’s projected budget surplus dropped $492 million since the last outlook in November, or about 33 percent. State budget officials blamed slower projected economic growth and lower tax collections.

The state will be spending more money than it takes in by the years 2022 and 2023, the forecast indicates.

“It’s a cautionary tale, clearly,” state Budget Commissioner Myron Frans told reporters.

Walz, speaking shortly after the numbers were released, said he would mostly stay the course on his state budget that increases spending in most areas. He defended his plan to increase the state’s gas tax by 20 cents per gallon, which would give Minnesota the fourth-highest gas tax in the country.

The governor and top Republicans offered wildly different views on how much new money the state should spend amid a weakening economic outlook. Walz last week proposed his $49.5 billion spending plan, and negotiations have started with the country’s only divided state legislature.

Walz said the time was right for a major increase in road construction spending.

“This is not a recession. It’s a slowdown. But getting ahead of it in job creation -- one of the best firewalls against a downturn is investments in infrastructure,” the governor said.

Republicans compared Walz’s plans to “binge-spending.”

“What the governor’s doing is wanting to put $3 billion on top of Minnesotans who are already some of the highest-taxed people in the country,” House Minority Leader Kurt Daudt said. “That will only make this problem worse.”

Wealthy Minnesotans have been hurt twice by recent state and federal tax laws and are leaving the state, Republicans said. First, these people were hit by tax increases that lawmakers and former Gov. Mark Dayton imposed earlier this decade. Second, the people can no longer claim as much of their state taxes as federal deductions after changes made by the GOP-controlled Congress and President Donald Trump in 2017.

Minnesota faces a worker shortage, with 10 job openings for every seven job seekers, according to state data released Thursday. The shortage will worsen as older workers retire, state economists said.

Leaders from both parties agreed that Minnesota will need to attract new residents – including immigrants – to fill jobs here. Republicans said Minnesota’s reputation as a high-tax state would keep people away, but Walz said he didn’t think taxes were a top priority for people looking to move.

“They (Republicans) would be wrong,” the governor said. “People are moving here.”

Improved education, health care and roads will attract people to the state, Walz said.

Democrats who control the Minnesota House said they were aligned with the governor.

“This is a time to go big on a bonding bill, this is a time to go big on transportation investments and create jobs,” House Speaker Melissa Hortman said. “It is just not sustainable for us to continue to provide the services we currently provide at the level of revenue that we’re currently bringing in.”