Walz budget: big gas tax hike; more money for schools, health, roads

Updated 2:35 p.m. | Posted 12:14 p.m.

Gov. Tim Walz unveiled a nearly $50 billion, two-year budget plan on Tuesday that calls for raising the state's gas tax by 20 cents a gallon — about a 70 percent increase from the current tax — and for more spending on education and health care.

Walz, in his first budget plan as governor, also proposed cutting taxes for low-income Minnesotans, farmers and small businesses as part of conforming state taxes with recent federal changes.

The $49.471 billion, two-year plan released Tuesday pays for those priorities by using a $1.5 billion budget surplus as well as new taxes.

It's a plan that may need to be reshaped when the state's newest budget and economic forecast projections, complete with a new surplus estimate, arrive next week.

"Minnesotans want to bring down the cost of health care, provide a quality education to their children and grandchildren and ensure that communities across this state are prospering," Walz told reporters. "The budget that I'm unveiling today will ensure that we are making significant strides toward achieving these priorities."

He added that he would address affordable housing separately, proposing $150 million as part of a $1.27 billion bonding bill he's expected to introduce next week.

To turn his wish list into reality, Walz will need to get buy-in from a divided Minnesota Legislature.

He'll have an easier time in the House, which is newly controlled by Democrats. But he's facing a challenge in the Senate, where Republicans in control are already pushing back on his plan to raise taxes and increase state spending.

Minutes after Walz laid out his budget plan Tuesday, Senate Majority Leader Paul Gazelka, R-Nisswa, slammed some of the proposals, including the 70 percent increase in the gas tax.

Gazelka also dismissed Walz's health care expansion as "government-run health care for all" and a "disaster." He also said that continuing a 2 percent health care provider tax, another Walz idea, is a "dead issue" for his caucus.

Overall, he derided the Walz budget as something that would transform Minnesota into a "cold California."

House Minority Leader Kurt Daudt, R-Zimmerman, was similarly unimpressed.

"My jaw was hitting the floor when I was hearing what I was hearing," he said of Walz's budget plan.

"This is One Expensive Minnesota," said Daudt, tweaking Walz's "One Minnesota" campaign theme.

They did say they wanted to work with Walz, especially on infrastructure and closing the student achievement gap. But they made it clear the gas tax increase will be a flashpoint at the Capitol.

Watch: Gov. Walz delivers budget proposal

Walz's office said it would raise $1.9 billion when it's fully phased in 2022-23. It would fund road and bridge construction. The governor also wants to raise motor vehicle sales and registration taxes.

"This is not a choice between whether we want the gas tax or not," Walz told reporters. "It's a choice between living in a state with the best transportation system in the country or one with crumbling roads and bridges."

Here's a look at proposed changes in some of the state's biggest spending areas.

Health care

Walz's budget creates a subsidy program to reduce premiums on MNsure, the state-sponsored health plan exchange.

It establishes a tax credit to help with costs on the marketplace and establishes a "OneCare" public buy-in option.

Walz's plan continues the 2 percent tax on providers, which is scheduled to end of 2019.

"What Minnesotans want from their health care is simple," Walz said. "They don't want to get sick in the first place, but if they do, they want care at a price they can afford at a location close to home."

Education

Walz's plan would increase the per-student education funding formula by 3 percent in the first year and 2 percent in the second year, for a $523 million increase from the current budget.

His overall boost in education spending would run $733 million, about 5 percent more than current funding, including $77 million for special education and $8 million to get more teachers of color in Minnesota schools.

He also calls for spending $8 million to expand full-service community schools, a model that brings health care and other non-education services into school buildings.

Walz's budget also proposes more funding for the state grant program for college students, and his bonding bill will focus on repair projects on higher education campuses.

"As a former teacher I've seen first hand the power of investment in a child," he told reporters.

Transportation

Walz is proposing to increase transportation funding for roads and bridges in counties and cities by 35 percent with much of that paid for with his gas tax hike.

His budget plan would also increase sales taxes in the seven-county metro area by .125 percent to expand regional buses and and transit lines, which will raise roughly $770 million over 10 years.

Among his other proposals, Walz's plan would:

• Spend $70 million on a border-to-border broadband program.

• Spend $15.4 million next year followed by $8.7 million for cybersecurity efforts.

• Expand the working family tax credit, lowering taxes for Minnesota families by an average of $227 per household for some 46,000 households.

• Spend $550,000 in funding managed by Department of Public Safety to address "gun violence prevention" programs and to "modify and maintain" the gun permit background check system.

The governor and Legislature must agree to a two-year budget before the next fiscal year starts on July 1, or state government will shut down. It's happened in Minnesota before — twice — including a historic, 20-day shutdown in 2011.

Revenues have been trickling in slower than expected over the last several months, which could mean a smaller surplus in the revised forecast. Walz is also required to revise his budget with the new numbers.

The governor will swing around the state in the coming days to pitch his budget plan to the public.

MPR News reporter Elizabeth Shockman contributed to this report.

Correction: (Feb. 20, 2019): An earlier version of this story misstated the Walz budget's proposed metro area sales tax increase for transit and the length of time to raise $770 million.