Updated: 4:40 p.m.
Minnesota will get more money than previously expected from a federal COVID-19 rescue package, and that $2.83 billion is certain to factor heavily into a state budget deal.
Prior estimates were that Minnesota’s state government would receive about $2.6 billion. On Monday, the U.S. Treasury Department formally issued allocation information and guidance on how it could be spent.
The money is on top of what will flow directly to counties, big cities and other government entities around Minnesota. School districts and other federally supported programs are in line for their own buckets of aid.
Senior Biden administration officials told reporters on a conference call Monday that the payments will start arriving in state treasuries “in a matter of days.” Half will come in this year and half a year from now.
“With this funding, communities hit hard by COVID-19 will be able to return to a semblance of normalcy; they’ll be able to rehire teachers, firefighters and other essential workers — and to help small businesses reopen safely,” Treasury Secretary Janet L. Yellen said in a written statement.
At Minnesota’s Capitol, the influx of money and newly issued guidance comes as Gov. Tim Walz and legislative leaders are reaching for agreement on a new two-year budget.
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Legislative Republicans and some Democrats have been vocal about the Legislature having a direct say in how the money is spent rather than leaving it to the Walz administration to decide. There was ample concern that guidance would come too late for that to happen.
The money can go to specific purposes:
Boosting public health efforts tied to the COVID-19 pandemic, including vaccination, contact tracing and testing programs.
Addressing economic insecurity caused by the pandemic or helping distressed businesses.
Supporting mental health, substance abuse and other crisis treatment that came under strain over the past year.
Providing premium pay to essential workers who carried on despite great personal risk.
Investing in infrastructure such as water, sewer and broadband. But using the money to pay for debt on roadwork and similar projects won’t be allowed.
There is some flexibility for states and local governments to patch revenue holes. But the money can’t be used to directly or indirectly backfill for tax cuts. States and local governments are also barred from using the aid to shore up pension programs, pay for legal settlements or beef up rainy day funds.
One way the money can be used is to exempt federal Paycheck Protection Program loans and unemployment insurance benefits from state taxes. The Legislature has been arguing over the details of those moves.
Senate Majority Leader Paul Gazelka said Monday the latest word from the Biden administration should put that disagreement to rest.
“With the announcement today, the governor and House Democrats have run out of excuses to delay passing PPP and UI tax conformity,” Gazelka, R-East Gull Lake, said. “The tax deadline is Monday. If the House passes PPP and UI conformity, it will give Minnesotans the clarity they need today.“
News of the money’s arrival from Washington should end Walz’s and House Democrats’ call for an income tax increase, Gazelka said.
“We are getting $200 million more than initially expected,” Gazelka said. “There are zero reasons, absolutely none, to ask for more money from Minnesotans.”
At an event where he was promoting a plan to spend more on child care, Walz he supports exempting most of the loans, but not all.
"The question is if we've got industries that made massive amounts of money, made massive CEO salary bumps on that, I think I would like to see us use that money for child care development,” Walz said. “And so at this point in time, we're still negotiating that."
Walz said he does support exempting unemployment benefits from state taxes.
The chair of the House Taxes Committee said it was still too soon to say for certain what the federal cash infusion means.
“We just need to look at this a little closer. It just isn't clear," said Rep Paul Marquart. DFL-Dilworth, adding that, "within a day we'll know a lot more information."
Minnesota Revenue Commissioner Robert Doty said his agency is reviewing the new guidance, but told lawmakers there are "potentially some great opportunities" to align the state and federal tax codes in those areas.