Minnesota’s state government took in nearly $500 million more in taxes than expected in April, according to data released by the state budget office on Friday, as budget negotiations ramp up between Gov. Tim Walz and Republican leaders in the Legislature.
With 10 days left in the session, Republicans seized on the improved fiscal outlook, saying it shows that tax increases proposed by Gov. Tim Walz and Democrats in the Minnesota House are unnecessary.
“It’s very hard to look Minnesotans in the eye and tell them we need more revenue for the next budget,” state Sen. Paul Gazelka, the Republican majority leader, said in a statement released shortly after the new revenue figures were released.
Myron Frans, Walz’s commissioner of Minnesota Management and Budget and one of his closest advisers, cautioned against drawing conclusions. “We advise against making long-term policy decisions based on one month of receipts,” he said in a statement. April can be the most volatile month of tax receipts because it is tax filing season, he said.
“Minnesota is financially sound and Governor Walz is working hard to keep it that way,” said Walz spokesman Teddy Tschann. “When planning a family budget, no Minnesotan would use a one-time bonus as a reason to take a pay cut. We need to invest in our future and the things that made our economy strong in the first place — education, health care and transportation.”
Walz, the GOP-controlled Senate and the DFL-controlled House are locked in negotiations to craft a state budget for the next two years — expected to top $45 billion — before the scheduled end of the legislative session May 20.
Among the chief sticking points: Walz and his DFL allies in the Legislature want to keep in place a 2% tax on health care services that raises about $700 million per year but is set to expire at the end of 2019.
Democrats would also raise the gas tax 20 cents a gallon during the next four years for road spending — the first gas tax increase in more than a decade. The 70% increase would raise the fuel tax from 28.5 cents to 48.5 cents per gallon and increase with inflation after that. The DFL also wants to increase the sales tax a half-cent in the metro to pay for transit improvements. An increase in some corporate taxes would pay for tax cuts for some families.
Democrats say new money is needed to improve schools, roads, parks, health care and medical services for the elderly and people with disabilities. Republicans point to a budget surplus of about $1 billion and say government has what it needs.
The GOP has thus far held firm on not considering any tax increases.
The new tax collection numbers landed as budget negotiations are at an impasse. Walz, Gazelka and House Speaker Melissa Hortman will be together in Albert Lea on Saturday marking the Governor’s Fishing Opener. They are expected to meet again Sunday evening in St. Paul.
Hortman, who was elected speaker after the DFL took the House in the 2018 election, said a month of tax receipts has no bearing on the long-term budget outlook: “There’s very troubling signs on the horizon. Minnesota’s economy is very dependent on agriculture commodities. And they have no certainty in their future because of the trade tensions,” she said, referring to the latest collapse in trade negotiations between the United States and China, a major importer of Minnesota farm products.
Personal and corporate income tax receipts drove the April windfall, with individual income taxes $388 million above forecast. Corporate taxes were up $133 million.
The upbeat April tax receipts could be related to the ongoing effects of the Republican-backed federal tax cuts in 2017, Frans said. Tax analysts are still unsure how the federal law is affecting taxpayer behavior, especially on capital gains income. Other states have also seen wild swings in revenue, Frans said.