Minnesota

State Fiscal Briefs

March 2020

Minnesota’s budget basics

According to the National Association of State Budget Officers (NASBO), Minnesota’s total expenditures in fiscal year (FY) 2019 were $42.2 billion, including general funds, other state funds, bonds, and federal funds. NASBO reported that total expenditures across all states in FY 2019 were $2.1 trillion, ranging from $4.5 billion in South Dakota to $311.3 billion in California.

Each state allocates spending and taxes differently among different levels of governments, and local governments often administer programs with state funds, so combined state and local government data show a more complete picture of individual benefits and contributions when comparing states.

Per the US Census Bureau, Minnesota’s combined state and local direct general expenditures were $59.3 billion in FY 2017 (the most recent year census data were available), or $10,656 per capita. (Census data exclude “business-like” activities such as utilities and transfers between state and local governments.) National per capita direct general expenditures were $9,449.

Minnesota’s largest spending areas per capita were public welfare ($2,740) and elementary and secondary education ($2,336). The Census Bureau includes most Medicaid spending in public welfare but also allocates some of it to public hospitals. Per capita spending is useful for state comparisons but is an incomplete metric because it doesn’t provide any information about a state’s demographics, policy decisions, administrative procedures, or residents’ choices.

Minnesota’s combined state and local general revenues were $58.5 billion in FY 2017, or $10,498 per capita. National per capita general revenues were $9,573. Minnesota uses all major state and local taxes. After federal transfers, Minnesota’s largest sources of per capita revenue were individual income taxes ($1,968) and property taxes ($1,599).

Minnesota’s politics

Governor Tim Walz, a Democrat, was elected in 2018 with 54 percent of the vote. The next gubernatorial election is in 2022.

Minnesota has a divided government. Democrats control the House of Representatives, (74 Democrats to 58 Republicans) while Republicans control the Senate (35 Republicans to 32 Democrats). All Minnesota House seats are on the ballot in 2020 because representatives serve two-year terms. Senators serve a combination of two- and four-year terms during each decade’s legislative district apportionment cycle. This 2-4-4 term system ensures all Senate seats are up for election after new legislative district boundaries are drawn. Roughly half the senators are up for election in 2020, and all senators are up for election in 2022.

Minnesota’s budget institutions, rules, and constraints

Minnesota uses a biennial budget. The legislature is not required to pass a balanced budget and the governor is not required to sign one. However, the governor must submit a balanced budget, and the state’s own-source revenue and debt allowance must meet or exceed its expenditures. Additionally, deficits cannot be carried over into the following year and there are limits on total authorized debt incurred by the state.

(Note: Some states have informal budget institutions that constrain overall spending growth or a specific expenditure’s growth.)

Minnesota’s recent fiscal debates

  • In 2017, Minnesota used federal taxable income as the starting point for its state individual income tax. As a result, Minnesota’s state tax was set to significantly change in 2018 because the state could either conform with the Tax Cuts and Jobs Act (TCJA) and accept big federal changes to its code (and possible resulting tax increases) or decouple and make its own major state tax reforms. But the governor and legislature could not agree on how to proceed, and Minnesota taxpayers were forced to use the outdated federal code in their tax year 2018 state calculations, which made filing taxes horribly complex for Minnesotans. In 2019, the two sides finally came to an agreement: Minnesota switched its starting point to federal adjusted gross income; increased the state’s standard deduction; eliminated the state’s personal exemption but kept the state’s dependent exemption; reduced some income tax rates; and increased the state’s working families tax credit (their version of the earned income tax credit), among several other reforms.
  • One of Governor Walz’s largest first-year priorities was increasing Minnesota’s transportation spending, mostly with a gas tax increase. Legislation the governor supported hiked the state’s gas tax rate from 28.6 cents per gallon to 48.6 cents over four years, increased the sales tax rate on car purchases, and raised car registration fees. The state estimated that the Minnesota House version of the legislation would provide $1 billion more in road spending and $400 million more in transit spending over the two-year budget. However, although the House passed the legislation, it failed in the Senate.

Minnesota’s current budget

Governor Tim Walz announced his FY 2020 and FY 2021 budget in February 2019. In addition to his transportation funding plan, the budget also proposed spending increases for preschool, special education, and school safety. The governor also highlighted his health care initiatives in his 2019 state of the state address.

The legislature passed its budget in July 2019. Although the legislature did not pass the governor’s gas tax increase, it diverted a portion of auto sales tax revenue to the transportation fund. The governor and legislature also mostly found common ground on education and health care spending.

For more on Minnesota’s budget, see