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Minnesota’s budget basics
According to the National Association of State Budget Officers (NASBO), Minnesota’s total expenditures in fiscal year (FY) 2020 were $45.0 billion, including general funds, other state funds, bonds, and federal funds. NASBO reported that total expenditures across all states in FY 2020 were $2.3 trillion, ranging from $4.7 billion in Wyoming to $337.7 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 $62.2 billion in FY 2018 (the most recent year census data were available), or $11,093 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 $9,801.
Minnesota’s largest spending areas per capita were public welfare ($3,028) and elementary and secondary education ($2,390). 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 $62.5 billion in FY 2018, or $11,154 per capita. National per capita general revenues were $10,071. Minnesota uses all major state and local taxes. After federal transfers, Minnesota’s largest sources of per capita revenue were individual income taxes ($2,119) and property taxes ($1,649).
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, (70 Democrats to 64 Republicans) while Republicans control the Senate (34 Republicans to 33 Democrats). All Minnesota House seats are on the ballot in 2022 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. All senators are therefore 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
Minnesota enacted its FY 2020-2021 bienneial budget in May 2019. The enacted budget included $86.8 billion in total spending and $48.5 billion in general-fund spending over the two-year period. Governor Walz released his FY 2021 supplemental budget proposal in March 2020. The main action of the supplemental budget was returning $491 million to the state’s budget reserve (the state used reserve funds to balance its FY 2020 budget but ultimately did not need the money when revenue came in higher than expected), but there were also some new expenditures, including allocating funds in preparation for the state’s COVID-19 response.
The legislature did not enact a supplemental budget in 2020. However, Governor Walz did reduce general-fund spending by freezing hiring for nonessential positions, reducing his cabinet’s pay 10 percent, and eliminating some corrections department jobs.
Governor Walz released his FY 2022-2023 biennial budget proposal in January 2021 and gave his State of the State address in March. Over the two-year period, the governor proposed $52.4 billion in general-fund spending. Governor Walz says he is open to tax increases on high earners, a higher gas tax, and drawing down the state’s rainy-day fund to balance the budget. Governor Walz also released a revised FY 2022-2023 biennial budget proposal in March. The major change from his original proposal was more tax relief for residents who received unemployment benefits and those who qualify for the state’s earned income tax credit. The revised budget did not include the federal funds Minnesota will receive from the American Rescue Plan.
For more on Minnesota’s budget, see
Minnesota’s economic trends
Minnesota’s per capita income (per the Bureau of Economic Analysis) was $61,540 in 2020, ranking 15th among the states. It was above both the national average of $59,729 and the Plains regional average of $56,321. The state’s median household income (five-year estimate) was $71,306 in 2019, ranking 13th among the states and above the national average of $62,843. Minnesota’s poverty rate was 9.7 percent in 2019 (five-year estimate), below the national rate of 13.4 percent.
Although Minnesota’s averages tell a story about the entire state, Minnesota is composed of diverse localities. For example, the city of Mankato’s median household income was $47,924, and its poverty rate was 25 percent; the city of Chanhassen’s median household income was $124,125, and its poverty rate was 3.5 percent.
Minnesota’s unemployment rate has historically been below the national average. (See how COVID-19 is affecting state employment and earnings data.)
Unemployment rates (like other economic indicators) often vary significantly by race and ethnicity. In Minnesota, the average unemployment rate in 2020 was 5.6 percent for white residents, 9 percent for Black residents, and 7.3 percent for Latino residents.