Updated: 3:48 p.m.
It's the kind of problem many governors might love to have: how to divvy up a $9 billion budget surplus.
But unlike many states, Minnesota has a divided government, and the Democrat-controlled House and Republican-controlled Senate are already stuck on business tax cuts and pandemic bonuses.
Halfway through the legislative session, DFL Gov. Tim Walz has proposed one-time spending, included sending checks to taxpayers, “hero pay” for pandemic workers and money to refill the depleted unemployment insurance fund.
The governor also faces a challenging landscape as he heads into his campaign for a second term. Minnesotans are exhausted after two years of the COVID-19 pandemic and worried about rising gas prices, a war in Ukraine, a surge in violent crime and the future of public education.
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On Friday, politics editor Mike Mulcahy talked with Gov. Walz about what he thinks can get done this legislative session and how he wants to lead Minnesota forward.
Plus, an economist explains why inflation is a growing concern.
Minnesota Gov. Tim Walz
Louis Johnston is a professor of economics at the College of Saint Benedict | Saint John’s University and writes the Macro, Micro, Minnesota column for MinnPost.
Use the audio player above to listen to the full conversation. Below is a transcript of the conversation with Walz. It has ben lightly edited for length and clarity.
The Minneapolis school district and striking teachers and support staff now have a tentative contract deal. Many of our listeners wanted to ask you why you didn't take a bigger or a more prominent role in trying to settle that strike?
Well, first of all, I'm excited for our students, our parents, I'm excited for our teachers and support staff and for our state. There was a lot of commonality in this of making sure that our schools are fully funded, we have mental health services available. And we're modernizing our education system.
As far as being involved with this, this is these labor agreements are an important part of how our country work. There is a little-known state agency called the Bureau of Mediation Services that's at the heart of these decisions. I was getting briefed multiple times a day, our mediators, again, are independent, they need to be. It's not right for me to put a finger on the scale. But I have been very, very clear that this was needed. I have made the case that passing the supplemental budget, especially around education, will cut these things off in other districts because your listeners out there hearing across the state recognize this is going to be something that challenges other districts.
So the process worked itself out, we are actively engaged in the appropriate manner that we should. And I think using my time to advocate for the need for changes to how we fund education, not relying so much on property tax, and then a recognition that coming out of COVID that we need to do some things differently. So we're engaged, we're happy with this tentative agreement. [We are] super excited [for] Monday morning when those kids get back in the classroom.
You have proposed a pretty big increase in school spending on top of what was a pretty big increase that the Legislature agreed to last year. How confident are you that school funding piece will be part of an end of the session deal?
Well, I'm pretty confident and I'm a realist on this when you hear folks that, we do have divided government, and I think contrary to what some may say is that can be a positive. By definition, everything we've done over the last few years has been pretty bipartisan, certainly around budgeting. I'm confident that lawmakers are hearing whether they're Democrats or Republicans, they're hearing from their schools, the need to do this, we're in a position where we can. All of this coming on, you know, three years of the largest middle-class tax cut in 20 years.
So, this surplus that was created by changes in spending that created corporate profits gives us a chance to, as you heard in your stories mentioned, looking to the future around labor, about preparing that workforce. And so the business community advocating everything from child care to these investments in early education, they're with us on this. And I think that's why there's good reason to believe that we can get this done.
Why has it been so hard in these early weeks of the session to give businesses a tax break and front-line pandemic workers a bonus?
I think you need to take yes for an answer sometimes. And I think you summed that up right. Just to be clear, our unemployment insurance in this country is an incredible anti-poverty program. It was sprung out of the New Deal in The Depression. It works. Our businesses paid into it, and we paid out to our workers during a time of a global crisis. It worked. Now it's time to replenish those funds. We have the capacity to do that both with some federal funds from COVID relief that was targeted for dealing with COVID and its aftermath, and plus this surplus that's created.
We also made promises voted on and I signed into law the need to address the front-line workers who took more of the burden on during COVID, whether they were caring for us in the emergency room, or whether they were processing our food, or whether they were on the streets as EMTs, at a time when we didn't have a vaccine, and we were asking people to be there as well as child care workers, so the rest of us could go to work. It makes sense to me that this isn't an ideological difference. It's not Republicans asking for a tax cut in this deal. And it's not Democrats asking for a new program. It's doing things that are both good for the economy. You can't separate workers from businesses. And the case I'm making is that we're still left for a very robust discussion on the other $7 billion.
So I think at this point in time, there's some new personalities involved in this. I think we're going to have to recognize, and I wish people would continue to say, so I'm not going to get everything that's in my budget. And that doesn't mean I'm negotiating with myself; it means that I'm opening the door to compromise with the things that the Republican[-led] Senate wants to try and do. So I think what it is, it's a little early, I'm frustrated that it didn't get done earlier, I do know that those businesses need that certainty and those workers need that frontline pay. We'll get this done, but it's going to take folks stepping a little bit and saying OK, I'm willing to give here to do this.
Does this early holdup make you worried about how things are going to end up in May?
It does. And I have been a legislator, I would argue that there's a nature of deliberative bodies. They tend to, you know, wait to the last minute because they're still trying to get the best deal. I don't even think that's necessarily a pejorative, I think what's changed is this rigidness that — “not only is my position right, your position is so wrong that I can't compromise 1 inch on it.” There are going to be some of those issues that we just have to take off the table and say we're for another day.
But when it comes to whether it's the relief on the UI trust fund, whether it’s maybe taking a look at both checks back to people, paid family leave, investments in education, we blow past deadlines, as if they don't matter. And we need to get out of this idea that compromise is somehow a vice. It is not, it's a virtue in a democracy, it requires us to do that. And I think the national narrative around, you know, just the strict divisiveness that, you know, the other folks don't just see it differently.
I feel like Minnesota still has the capacity to do that. We've passed three budgets — two major and a supplemental. We passed a historic bonding bill. We've dealt with other issues that have come up, and we need to get this done. There's some things that shouldn't be that difficult. And I think if we would look more to Minnesota, look to more Minnesota tradition, and not look to what we see as this, you know, the national political landscape that is if you compromise, you're somehow seen as impure amongst your party, and then that can't be the case.
If there's not a deal by the constitutional deadline to adjourn the session in May, are you inclined to call a special session? Or would you just let the voters decide and go from there?
Well, we'll cross that bridge when we come to it. I think it would be a really wasted and missed opportunity, things like drought relief that should have been done last summer; these checks in people's hands, as you mentioned, dealing with global inflation and real costs, whether it's food or gas, to make a difference because we have the capacity to do that.
To give some certainty to business going forward and to make these investments that everyone is telling us on things like child care, that would have a huge, long-term economic growth for us. So, you know, doing nothing, I guess, is an option for folks. I think it would be a capitulation of our responsibility. I think we would missed opportunities. And I think we need to be careful that we are in one of the strongest positions in the country coming out of COVID, economically, COVID numbers and all of those things. But that can be fragile. You talked about that the uncertainty of the Russian invasion of Ukraine, issues around, you know, the inflationary costs, and then to be honest, people are feeling a real sense of urgency on issues like climate change. And as you said, violence, gun violence and things. So, you know, we got proposals out there that put money into communities that are actually lowering crime rates. To not do that just doesn't seem to me to be doing the job you're elected to do.
Republicans in the Senate say they want permanent tax cuts. You have proposed one-time checks, $500 for individual taxpayers and $1,000 for couples, why is a one-time payment better than a permanent tax cut when there's a $9 billion surplus?
I have proposed some permanent moves in there as we've done before, [like] child care tax credit and some of those things. The Republicans are proposing billions of dollars of ongoing and that would reach to the top folks, folks you see in the newspaper lately, making $100 million plus, you know, the last year or two. What that does is there's no guarantee of a permanent surplus, but you would have a permanent deficit at that point in time. And then, you know, and some may argue that this might be, you know, not a flaw in the system, but designed that you end up underfunding things like education or road construction or health.
And I think was such an uncertain economic environment that it makes sense to get this money back out to folks, pay off our bills, create the rainy day fund, invest, you know, that aren't adding long-term costs. And then let's take a look at it. If this economy continues to recover the way it's been. If we see a surplus, again, the taxpayers are right about this, you budget for what you're going to spend you agree on that, you collect the revenue necessary. And that should be as close to zero as you can to offset. If it continues to be either too low or too much you need to make decision.
I just don't think in this volatility, where keeping in mind a year ago, we were looking at a $4 billion deficit. That changed and surprised economists. And I don't think the post-COVID economic structure has shaken itself out to the point where Minnesotans are willing to put our long-term economic well-being at risk. But I'm open to having the discussion around those targeted cuts. At least what we're seeing right now. And it's not out yet. The difference is, is that I'm required by law to get budgets out, you know, first part of the year, the Senate and the House can watch a little bit. With that being said, I want to see what they propose see it on paper, and then let's talk.
One thing they have proposed is cutting any income taxes on Social Security income. Why not use the surplus to do that? Eliminate that tax once and for all?
Yeah, and I reduced that in my first budget and proposed it. To be clear, the tax and the bulk of the tax on Social Security is federal. It was started in the mid-’80s. President Reagan put it in. But but there is a floor that goes on there. So for Minnesotans receiving Social Security, 60 percent of people pay nothing at all, no state tax on their Social Security. And then it's a sliding scale that you're taxed on the percentage that goes up depending on how much you make. And the proposal by the Republicans would send 90 percent of the tax cut to the 10 percent of wealthiest Americans, wealthiest Minnesotans.
Meaning folks who have other retirement incomes, would see the largest cut where the bulk of Minnesotans would see a smaller cut. I said I am open as I was and proposed myself in the first one and got through, is I thought that seat that floor should have been raised some and I'm open to that.
But I'm not open, because again, these dollars are turning right around and being used as Minnesota entered is one of the few states as an age friendly state. It's a reason why groups advocating for seniors like AARP do not advocate for the full repeal.
And they think Minnesota's structure where we exempt the vast majority of people — if you're depending solely on Social Security for retirement, you're not paying tax right now, under the Republican proposal that money would go back to to wealthier Minnesotans. But I'm open to changing as we did last time, what that floor looks like.
Last year, early on, you proposed an income tax increase on the state's highest earners, a new tax bracket. Would that still be on your agenda if you were reelected?
No, not right now, not with where the the proposal is. I think leadership requires you to adjust where the situation was. We proposed, for example, we needed to fix our roads and bridges and I asked for Minnesotans to update what was at that point in time a very outdated, where in the bottom half on gas tax. Well, gas was $1.57. And we didn't have a federal infrastructure bill. We now have federal infrastructure bill and gas is $3.99.
So it doesn't make sense at this point because we have the resources to do it. I think the same thing on those highest earners. Yeah, I don't do it as as a punishment. It's not a class envy thing. But Minnesota and this country, but especially Minnesota, has a progressive income tax system that serves us very well and it lifts all boats, if you will, and it makes sure that all Minnesotans live a higher quality of life. And so the outcomes we get in terms of life expectancy, quality of health of homeownership, those things raise because of the way we do that.
I think at this point in time watching where the surplus is that it would not necessarily be there. That's though at the point where we need to continue to invest, to grow. So even those folks at the top continue to grow, investing in things like child care, education, paid family, medical leave that attract people to our state, and continue to grow.
The Republicans who want to run against you, probably most notably Scott Jensen, say basically that you overreacted to COVID-19, you shut the state down for too long. You weren't subtle with your approach. How do you respond to that?
Well, it's false, first of all. And outside groups looking at this, whether they be nonprofits or Politico that did an analysis — and when you look at Minnesota's, for example, COVID-per-capita death rate, we’re one of the 10, 12 lowest states in the country. Had I followed states surrounding us, for example, South Dakota, we would have 7,000 to 8,000 more dead Minnesotans. But the myth here was is that you couldn't also protect the economy. The economic numbers, the growth, the investments we're seeing in the business longevity seem to indicate the Minnesota is doing better than almost all of those.
And I think for those that set back and take their critique, during this time, we've delivered tens of millions of vaccines, tens of millions of tests, made sure we protected people from evictions, we provided unemployment insurance, we actually did the governing piece of this that kept folks alive. And an ideology that, you know, says we simply should have done something else and it'd be easier is not just Monday morning quarterbacking. It's disrespectful to the to the folks whether they be the health care workers whether it be my National Guard who was in long-term care facilities.
And just to be clear, we took a very balanced approach. And again, when that Politico article I mentioned they took in a whole bunch of factors, whether it be child well-being, job security, economic growth, as well as the outcomes around COVID. And the consensus they came to as five states took a really balanced approach that made a difference. And Minnesota was one of those. So I mean, it's unfortunate, I think when an average citizen says, you know, I would have done it differently.
There's certainly things that when you look back reflectively now what you know, that you didn't know, then you could certainly make changes. But what I think is really dangerous is as people who are in a position and get some airtime to put out patently false information to fit a narrative that is not factually correct. It's not scientifically correct. And it doesn't match the outcomes that we're seeing. I think rooting against Minnesota is never a good place to be, Minnesota came through this strong, and they'll continue to go that direction.
(Scott Jensen) told me he doesn't trust the CDC, he doesn't trust the state Health Department, and that he believes the number of deaths attributed to COVID-19 is overstated. What's your reaction to that?
Well, it's false to start with, and I don't know, I can't speak what's going through someone's mind. But as I would state, again, we have to be able to agree on a set of given facts. One plus one is two, and these institutions that have been nonpartisan and done good work over the years, provide us with some guidance. We verify with third party folks we work closely with, for example, with Mayo Clinic on numbers. No one who does this, and no one who's involved with this agrees with any of that, and for the sake of Minnesota is, is that I had to make a decision based on the best facts to base science and the best what was long term for Minnesota, regardless of where the politics were.
The decisions I made were not popular in many cases, but they were the right ones around what it was for Minnesota. So I just think undermining those things and telling people that, it makes it hard than for for people to get good information which they need to make informed decisions. And that's what we will continually try and do. I'm very proud of what Jan Malcolm and the team did it at the Minnesota Department of Health. We are good partners with the CDC. But we're also as I said, good partners with our health care system, with Mayo Clinic and those numbers verify what we're seeing in from CDC and from others. So it just simply, it's just not correct data.
Would you support any changes to the emergency powers you use during the pandemic? To limit them or otherwise make it so there's a little more consensus if something like this ever happens again.
Well, I'm always open to that. I'm a legislator at heart on this. I'm not open again, if it's to find a consensus around someone who's denying the facts, no. And the people have seen that the state has to move fast. For example, last September, our team, Mayo Clinic, others predicted that there would be a surge at that time around delta and as it morphed into omicron. And there were certain things that needed to be done. Some of those I could do with emergency powers, like using the National Guard and doing some of those things that save lives.
Other things I needed legislative help for. They're still debating those. Those are still debated today. Now, I've told them, it doesn't really make sense because that's over. But that's the difference. This is meant to if there is an emergency, whether it be a manmade or natural, tornado, and there are safeguards in place, they were given by the Legislature and voted on by the Legislature. And they have to be approved by the Executive Council.
Now there are those that think there's a better way? I'm certainly open to it. But somebody has to take responsibility, somebody had to do this. So I've got critics that have criticized the whole way, who didn't have to give a single vaccine, who didn't have to see to a single nursing home had emergency staffing at 2 a.m. in the morning, when all of their staff was down to make sure people were fed and cared for. So there needs to be a place to act quickly. And those those are granted by Minnesota statute. And I think in the outcomes of this they serve well.
I get it. Some people did not want to wear masks, but it was the best advice and needed to be done. So I'm open to talking to them about it. But just because you disagreed, I think tying the hands of a future governor in a scenario that we couldn't have predicted, a global pandemic, there's probably other things that we're not able to predict as well. We need to make sure that there's flexibility to act in the best interest of Minnesotans health.
The U.S. Supreme Court could overturn Roe vs. Wade this summer. If you are governor next year and further restrictions on abortions came to your desk, would you allow that to become law in Minnesota?
No, a woman's right to her health care decisions and her reproductive health is absolutely paramount. These things do nothing to reduce abortions if you want to, but they put women's lives at risk. Roe has been the law of the land and was not codified by it. In the state of Minnesota.
We value people being able to make those decisions and I would not I would not sign anything that would that would prohibit that safe access to women's health and reproductive care.
A lot of people think Democrats are gonna have a tough time in November, given the president's approval rating and things we've talked about, inflation gas prices. What's your message and how do you intend to win this campaign?
By giving a positive message of where Minnesota is going. People know my record, they don't have to guess. They've seen leadership, they've seen me stand up in front of them and say I assume responsibility. They watch us invest in things that got us to a 20-, almost 25-year low on unemployment and some of our largest growth that we've seen. And they've seen us take on and head on hard issues, whether it's public safety, or whether it's racial divisions.
And so I think what, folks now at this time, they generically would say, “well, you know, we need to go in a different direction. We need to go this way.“ It becomes different when it becomes the leadership we've provided versus what you're going to see. And then it doesn't become nebulous or guess or Monday morning quarterbacking. It becomes real. And I think Minnesotans know, we put their health and safety as a priority. We depended on science, we build coalitions. We brought civility you do not see me calling my opponents names and you do not see me putting out factually false information. And I think when it comes time to, what is a bright future look like or how do we navigate post COVID, I feel confident that that Minnesotans will give us that look.