Amid rising fears over a global coronavirus pandemic that has now reached Minnesota, Gov. Tim Walz on Thursday proposed a scaled back supplemental budget.
Walz’s supplemental budget asks for $525 million in investments over the next two years, focused on disaster relief, public health, student well-being programs and health care. It fit on a single page, a rarity the governor remarked on in his press conference.
With the economy strong, the state is enjoying a projected $1.5 billion budget surplus. DFLers had called for $500 million in new spending, largely focused on early childhood education, while Republicans pushed for nearly a billion in new tax cuts. Although the governor praised many of those proposals as sound, he eschewed them in favor of a cautious fiscal approach. Under his proposal, roughly 80% of the state’s $1.5 billion projected surplus would be left unspent.
Still, DFL legislators offered their swift backing, with House Majority Leader Melissa Hortmann quickly releasing a statement in support. Republicans were also open to the governor’s proposal, though details will still need to be worked out between the two sides.
“A lot has changed in a couple of months and the governor seems to be responding to that,” said Rep. Todd Lippert, DFL-Northfield. “We need to be focused on reasonable proposals right now, as we try to make sure we have the resources to respond to COVID-19.”
Sen. John Jasinski, R-Faribault, said that Senate Republicans would like to see additional investment in infrastructure along with several tax changes. However, he offered cautious praise for the overall proposal.
“At first glance it looks reasonable,” he said. “I think the governor is being somewhat conservative in his approach, to keep a good amount on the bottom line.”
While it wasn’t included in his proposal, the governor said he’d be open to bringing the state into full compliance with Section 179 of the federal tax code. Under that provision, businesses can deduct the entire cost of certain equipment from their taxes.
Due to the state’s lack of conformity with the depreciation provisions of the law, ag producers can be disadvantaged when they trade in their equipment. Proposals to change that enjoy strong bipartisan support, and Jasinski has cited it as a priority.
Walz noted that the change had been part of his budget proposal last year, but was ultimately left out of the final agreement with the Legislature. He said that if lawmakers can get such a proposal to his desk, he’d sign it.
Last year, Walz backed efforts to replenish the state’s rainy day fund, created in the aftermath of the Great Recession. Although the state is currently enjoying one of the longest stretches of economic growth in its history, Walz said a bear market could be on its way.
At the same time, the governor has asked the legislature to consider what would be the largest bonding bill proposal in Minnesota’s history. In addition to $2 billion in borrowed funds, his proposal included $571 million in additional funding, including general fund cash. Republicans, who control the State Senate, have pushed for a much smaller bill, potentially below $1 billion. Jasinski has said a final compromise agreement is likely to run at around $1.1 to $1.3 billion.
Yet even Walz’s proposal came in well below the amount that could be legally borrowed, according to the state’s Management and Budget Office. While acknowledging an abundance of worthy projects, Walz cited the need for fiscal caution as a reason for his smaller bill.
Change of plans
In recent weeks, state public health officials have become increasingly focused on the coronavirus epidemic. As of Thursday, the disease had spread to nine confirmed cases in seven Minnesota counties, two in southern Minnesota.
Legislators have had no choice but to follow. On Wednesday, Walz signed a bill providing $21 million in funds to fight coronavirus. He said more funding may be needed to combat the disease, amid fears that the Legislature might even have to go on hiatus. Coronavirus has already hit nation’a capitol hard, with several members of Congress choosing to self-quarantine. On Thursday it was announced that Brazilian President Jair Bolsonaro’s Communications Secretary Fabio Wajngarten had tested positive for coronavirus, days after meeting with President Trump, Vice President Pence and other U.S. officials.
On Thursday, House DFLers also released their plan to help Minnesotans affected by coronavirus. It included provisions to make it easier to access unemployment benefits, mandate that health plans cover coronavirus tests, and give Walz additional powers to address the crisis.
Due to the economic blowback related to the virus, the projected surplus is likely to shrink. Last month, state officials increased their surplus projection to $1.5 billion, but that report assumed that coronavirus would only have a modest economic impact.
Since then, projections of nationwide economic growth have been reduced amidst a stock market tumble. Budget Commissioner Myron Frans has warned that his projection is likely to change, but it won’t be released until April 10.
With the stock market tumbling, Walz said that argument for a cautious fiscal approach has been vindicated even sooner than he’d anticipated. He added that much could yet change, given the growing state of the pandemic.
“Last Thursday, I said we will be in a different position next week, and we will be in a different position by next Thursday also,” Walz said. “I’m encouraging the Legislature to get its work done and protect Minnesotans.”
As of noon Thursday, the virus, known as COVID-19 had infected 1,215 in the U.S., according to the Centers for Disease Control and Prevention. The virus has been reported in 43 states and the District of Columbia, and killed 36 in this country. Italy on Thursday reported its 1,000th death from the pandemic, while China recorded nearly 3,200.