REGIONAL- Gov. Tim Walz on Tuesday proposed a supplemental budget that blends spending cuts and tax changes to lower costs for Minnesota families while keeping the state’s finances on stable footing.
The plan calls for $370 million in spending reductions by fiscal year 2029 and would reduce the state’s projected long-term deficit for the next biennium by nearly 20 percent. Administration officials say the proposal would leave about $1.8 billion in reserve heading into the 2028-29 budget cycle, even as it layers in new investments and revenue sources.
“As families see higher prices and more economic uncertainty, we’re proposing legislation to make everything from child care to housing, to property taxes more affordable for middle-class families,” Walz said. “This is a fiscally responsible plan that cuts spending to maintain a balanced budget while preparing our economy and our workforce for the challenges of artificial intelligence.”
The proposal arrives against the backdrop of a recent state economic forecast showing a $3.7 billion surplus in the current budget cycle, alongside warnings about growing uncertainty tied to global economic pressures.
Cost relief at the center
Much of the plan focuses on household costs, with a particular focus on child care and housing.
Walz is proposing an expansion of the state’s Dependent Care Tax Credit, increasing the maximum allowable expenses by $3,000 for one child and $6,000 for two or more children under age five. The change is expected to benefit roughly 104,800 families with young children.
The proposal also includes housing investments, including $33 million for permanent supportive housing and $34 million to help first-time homebuyers with down payments, along with continued rental assistance through existing programs.
“Housing remains one of the top issues facing Minnesota families, employers, and local economies,” said Anne Mavity, executive director of the Minnesota Housing Partnership.
“We appreciate the inclusion of resources for homelessness prevention, supportive housing, and homeownership.”
The plan would also shave the state sales tax rate slightly, from 6.5 percent to 6.425 percent, while expanding the tax to cover a broader range of services.
Preparing for AI-driven changes
Another major focus of the proposal is the growing impact of artificial intelligence on jobs and the broader economy.
Walz is proposing a new tax on social media and technology companies with more than 100,000 monthly users, with the revenue directed toward workforce and economic development efforts designed to help workers adapt to changes driven by automation and emerging technologies.
The plan also calls for the creation of a Governor’s Council on the Future AI Economy to help guide how those funds are used.
“We’re asking them to pay their fair share, and most importantly, using those revenues that will come from that tax and starting to build for what is going to be disruptions from AI to the workforce,” Walz said, “and to start putting Minnesota on the forefront of planning.”
Not everyone is on board. Some opponents, including representatives of the tech industry, have argued the proposal could be difficult to implement and that any added costs could ultimately be passed along to users.
Metro Surge response included
The supplemental budget also includes funding tied to the state’s response to Operation Metro Surge, a large-scale federal immigration enforcement effort that disrupted businesses and reduced income for many workers.
The proposal includes $10 million in partially forgivable loans for businesses that experienced revenue losses, another $10 million for the Department of Human Services’ Human Services Response Fund, and rental assistance for about 9,150 renters through the Family Homelessness Prevention and Assistance Program.
“(Operation) Metro Surge was not only an attack on our human rights, our constitutional rights, it provided ample opportunities for the country to see the moral injury that was put on Minnesota,” Walz said. “But we’re left to pick up the pieces, and the costs are in the hundreds of millions of dollars.”
Other provisions, outlook
Walz also used the proposal to reiterate previously announced measures related to gun violence prevention and fraud oversight, including restrictions on certain firearms and the creation of a statewide Office of Inspector General.
The plan now heads to a narrowly divided Legislature, where its mix of spending cuts, tax changes, and new revenue proposals is expected to face a tough path in the weeks ahead.