Minnesota faces critical financial decisions as Governor Tim Walz unveils a streamlined budget proposal for the 2026-27 biennium, emphasizing fiscal prudence and historic tax reforms.
As Minnesota lawmakers enter a pivotal budget cycle, Governor Tim Walz announced a $65.9 billion proposed budget for the 2026-27 biennium on Thursday. This represents a reduction from the $70.7 billion allocated for the current 2024-25 biennium.
Walz’s proposal aims to leave a $2.1 billion surplus for the 2026-27 fiscal years, with an additional $355 million surplus projected for the 2028-29 biennium. However, the governor emphasized that fiscal caution is critical, warning that costs from newly created state programs in 2023 could push the state into budget deficits by 2030.
“This is a year to be prudent,” Walz said. “The responsible cuts in my proposed budget will address projected deficits before they materialize.”
Historic Sales Tax Cut Amid ‘Fairness’ Adjustments
In a first for Minnesota, Walz proposed reducing the state sales tax rate by 0.075%, lowering it from 6.875% to 6.8%. Despite the reduction, the state anticipates an overall increase in sales tax revenue.
The governor’s strategy involves closing sales tax exemptions on services like legal, accounting, brokerage, and trust services—changes Walz described as restoring fairness.
“If a tree falls in your yard and you hire someone to remove it, you pay sales tax. If you call your stockbroker and make a deal, you do not,” Walz said. “It brings fairness back into who is paying the sales tax.”
Republicans Push Back
The proposal drew swift criticism from Republican lawmakers, who rejected any expansion of sales taxes and raised concerns over funding cuts for long-term care.
“A budget that raises taxes on Minnesotans and cuts funding for long-term care is not a budget that values the people of Minnesota,” said House Speaker Lisa Demuth. “Democrats already used their one-party control to raise taxes on Minnesotans by more than $10 billion, and spent us into a looming deficit.”
Additional Cost-Saving Measures
Walz’s proposed budget includes several initiatives designed to enhance efficiency and curb spending:
- Anti-fraud package: Stricter penalties for individuals defrauding state agencies, coupled with expanded enforcement authority.
- Medicaid waivers: Capping automatic year-over-year growth rates.
- Special education transportation: A 5% reduction in reimbursement costs.
What’s Next
The budget process will now shift to the Minnesota House and Senate, where lawmakers will draft their own proposals, likely reflecting divergent priorities.
This process will gain momentum following an economic forecast from Minnesota Management and Budget, expected in late February. The November 2024 forecast projected a $616 million surplus for the next biennium but warned of a $5.1 billion shortfall for 2028-29.
Lawmakers face a July 1 deadline to finalize the budget. Failure to do so could lead to a government shutdown.
