Governor’s Budget Recommendations Include Funding for Programs That Benefit Cities

January 25, 2023

The proposal includes $65.2 billion in expenditures for the 2024-2025 fiscal biennium and contains many funding provisions that would impact cities.

On Jan. 24, Gov. Tim Walz unveiled his proposed budget for the 2024-2025 fiscal biennium that begins July 1, 2023.

The proposal includes $65.2 billion in expenditures and represents the first step in budget negotiations that will occur in the coming months among the Minnesota House, Senate, and Administration. The package does not include the governor’s bonding recommendations, which will be released on Jan. 26.

The budget forecast for the 2024-2025 biennium includes a $17.6 billion projected positive budgetary balance. Based on projections that as much as $12 billion of that positive balance is one-time and will not continue, the governor’s recommendations include substantial one-time tax cuts and appropriations.

DFLers who hold the majority in the House and Senate were quick to praise the governor’s budget proposal, with Republican leaders criticizing the plan for spending too much and not providing enough tax relief.

What’s included in the governor’s proposed budget

As expected, the proposed budget reflects Gov. Walz’s policy and funding priorities related to education, economic development, housing, and public safety.

The proposal contains $8 billion in a wide array of tax cuts including a plan to provide individuals making less than $75,000 per year with a $1,000 advanced income tax credit rebate while families earning under $150,000 per year would be eligible for $2,000 rebate. Households would also qualify for an extra $200 per dependent (with a limit of 3 dependents). This money would be non-taxable and would come out of the surplus, with the cost totaling nearly $4 billion.

Proposed budget items of interest to cities

Cannabis

  • Legalizing adult-use cannabis takes up budget line items for multiple departments to allow for the regulatory infrastructure to be created before tax revenue generated from the products accrues. The governor’s budget would appropriate $24.9 million to the Cannabis Management Office in fiscal year (FY) 24-25, plus an additional $43.8 million across multiple departments including Department of Health, Department of Human Services, and the Department of Public Safety.

Cybersecurity

  • Inclusion of $12,484,000 in FY 24 and $20,396,000 in FY 25 to fund the required state match for the $23 million available to Minnesota under the State and Local Cyber Grant Program authorized by the Infrastructure Investment and Jobs Act and support for statewide cybersecurity planning and defense.

Economic Development and Broadband

  • $138 million in FY 24 and $138 million in FY 25 to support the Border-to-Border Broadband Grant program.
  • $150 million in FY 24 for a new Minnesota Forward Fund to help Minnesota compete for large investments from the federal government for domestic production of goods, including maximizing funding from the CHIPS Act and Inflation Reduction Act.
  • $30 million for a Drive for 5 Workforce Fund to help address workforce needs in the five most critical occupational categories in the state including technology, caring professions, education, manufacturing, and the trades.
  • $42.295 million in FY 24 and $42.295 million in FY 25 for the Main Street Economic Revitalization Program to help address local economic disruption due to the pandemic and civi1 unrest.
  • $7.5 million in FY 24 and $7.5 million in FY 25 with $1.5 million ongoing for Child Care Economic Development Grants to support community efforts to increase supply of child-care opportunities, and $500,000 in FY 24 to fund a new Office of Child Care and Community Partnerships.
  • $10 million for FY 24-25 for an Energy Transition Grant Program to assist communities with recovering from loss of tax base and jobs resulting from power plant closures.

Elections

  • $230,000 2022 HAVA Election Security Funds State Match.

Employment

  • The governor’s budget funds the first year of the Paid Family and Medical Leave insurance program, which is anticipated to take a year of implementation to fund itself. This proposal costs $668 million dollars in FY 24-25 and $5.8 million in FY 26-27, with employer premium payments then funding the majority of the cost.
  • $3.3 million is appropriated for the Department of Labor and Industry to administer the proposed earned sick and safe time program.
  • The budget establishes ongoing funding of $525,000 each year to fund the operations of the Public Employment Relations Board.

Energy

  • The budget of the Department of Commerce includes $113.75 million in one-time funding to leverage federal Infrastructure Investment and Jobs Act (IIJA) funding for energy efficiency, renewable energy, and grid improvement. $6 million of that amount will be allocated to regional development organizations, one tribe, and four metro-area organizations to support local government efforts to solicit federal grants or other funding for these types of projects.

Environment

  • Department of Natural Resources (DNR): The proposed FY 24-25 budget for the DNR includes $6.6 million each year as grants for urban forest management through the ReLeaf program, with 4 new full-time staff positions for the department to provide technical assistance to local governments on community forestry. DNR proposes increasing water use fees and summer water use surcharges to generate an additional $1.7 million per year for department staffing.
  • Minnesota Pollution Control Agency (MPCA): The MPCA budget includes $86.94 million each year (with $1.12 million per year in ongoing funding) for their Resilient Communities Grants and Technical Assistance program. These funds could be used for the evaluation, design, or construction of stormwater, wastewater, or other public infrastructure needed to adapt to changing climate conditions. Additional funds are available for planning and developing local community capacity for ongoing efforts. In addition, the MPCA is seeking increased funding to support GreenStep Cities; PFAS Source Reduction and monitoring; $650,000 per year in grants for chloride management; a new staff position to manage water quality trading proposals; almost $17 million per year in increased funding for solid waste management.
  • Minnesota Department of Health (MDH): The governor includes $3 million per year in funds for grants to complete lead service line mapping and inventories. It also includes substantial staffing increases to deal with public water supply source water protection and PFAS and other contaminants of emerging concern in drinking water. The budget also includes the reinstatement of a state advisory group on drinking water and wastewater certification and training requirements, which the League has supported in several past proposed budgets.
  • Public Facilities Authority (PFA): The budget proposes supplying $8.35 million from the general fund each year for the Point Source Implementation Grants (PSIG) program which is currently funded through the Clean Water Fund.
  • Minnesota Department of Agriculture (MDA): MDA’s proposed budget includes $400,000 per year of ongoing funding for grants to local units of government for noxious weed management. It also uses $3 million each year from the Clean Water Fund for 11 full-time staff positions to monitor and evaluate nitrates in groundwater in Drinking Water Supply Management Areas.
  • Board of Water and Soil Resources (BWSR): The BWSR budget includes $2.5 million per year from the Clean Water Fund in for wellhead protection easements and grants.

Housing

  • $950 million for housing needs including $128 million in FY 24-25 for down payment assistance with $4 million per year ongoing; $100 million increase for the Economic Development & Challenge Fund Grant Program for housing projects that support workforce and economic development; $100 million for a Community Stabilization Program to help preserve Naturally Occurring Affordable Housing; $35 million increase for the Workforce and Affordable Homeownership program; and a $40 million increase for the Greater Minnesota Workforce Housing Development Program.
  • $100 million in Housing Infrastructure Bonds to assist with the development of permanent supportive housing, qualified multifamily housing, preservation of existing housing, single family homes, and manufactured home park infrastructure, as well as $20 million in FY 24-25 for public housing rehabilitation.

Local Government Aid and Taxes

  • The governor’s budget partially covers the request from cities on local government aid by proposing a $30 million per year increase with formula changes recommended by city groups in 2022.
  • Simplified construction sales tax exemption for local governments and non-profits on a temporary basis, retroactive to July 1, 2021, and effective through Dec. 31, 2024. This proposal would cost $250 million in FY 24-25.
  • Reinstate the historic structure rehabilitation credit which sunsets on June 30, 2022.
  • To partially fund these and other provisions in the tax bill, the governor is proposing increasing taxes on capital gains over $500,000.

Pensions and Retirement

  • $78 million for public pension plan retirees to receive a 2.5% cost of living adjustment in 2024; this is a one-time, non-compounding increase for retirees in the Minnesota State Retirement System (MSRS), Teacher’s Retirement Association (TRA), Public Employees Retirement Association (PERA), and St. Paul Teachers Retirement Fund Association (SPTRFA).

Public Safety

  • A one-time appropriation of $300 million for local public safety aid, $210 million of which would go to cities and be distributed based on population.
  •  $132.5 million for community supervision over the next two years.

Transportation

  • $358 million to the Trunk Highway Fund to match federal Infrastructure Investment and Jobs Act funds.
  • $364 million to non-trunk highway and other modes.
  • $100 million in matching funds for local governments.
  • $66 million for non-highway expenditures.
  • $50 million in trunk highway bonds to be used on projects seeking federal grants.
  • $10 million in FY 2024 and $10 million in FY 2025 for the Small Cities Assistance Account, an account that provides street funding for cities with populations below 5,000 that do not receive constitutionally dedicated transportation funds.
  • The proposal would change the depreciation schedule for tab fees and reduce the rate for vehicles 11 years or older from $35 to $30, generating approximately $175 million per year in new revenue to the Highway User Tax Distribution Fund (HUDTF).

What’s next?

Legislative committees are likely to start holding hearings on the governor’s proposed budget to discuss provisions, question state agency officials, and hear public testimony.

Meanwhile, budget and policy bills introduced by legislators will move through the legislative process, and some of those that pass will vary from Gov. Walz’s ideas.

As those bills are developed, the League will provide further details on the House and Senate proposals. Differences between House and Senate bills will be resolved in conference committees and legislative leaders will forge compromises with the governor later this spring.

The Legislature and the governor will await the February state budget and economic forecast, which is due by the end of February and will provide updated projections. The numbers in the February forecast provide parameters for final budget negotiations.

Get detailed information about the governor’s proposed budget

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