Tim Walz and the Democratic-Farmer-Labor (DFL) Party

Minnesota’s Historic Budget Windfall: A Missed Opportunity for Fiscal Responsibility and Leadership:

Governor Tim Walz and the Democratic-Farmer-Labor (DFL) Party-controlled legislature were handed an unprecedented fiscal opportunity with Minnesota’s $18 billion surplus heading into the 2024-25 biennium.

Rather than seize this moment to shore up the state's long-term economic and fiscal health, the state government dramatically expanded numerous existing programs and created new ones, inflating the state’s budget to $71 billion, according to recently published 2024 end-of-session estimates by Minnesota Management and Budget (MMB). This marks a significant 33% increase from the $52 billion spent during the 2022-23 biennium, leaving many concerned about the state's fiscal future.

This financial mismanagement follows a pattern of questionable leadership decisions by Governor Walz, most notably his handling of the riots that devastated parts of Minnesota during the summer of 2020, which still casts a shadow over his administration.

Expanding Government Overgrowth

Minnesota’s current administration has chosen to prioritize government expansion with little regard for long-term sustainability. The $71 billion budget for the 2024-25 period, adjusted for inflation, represents an astonishing $17 billion jump from the previous biennium. Looking ahead, spending is set to continue its steep climb, with projections for the 2026-27 biennium showing spending at $66 billion—22% higher than the 2022-23 budget. This unchecked growth in spending raises serious concerns about whether Minnesota’s fiscal policies are setting the state on an unsustainable path.

The political narrative that justified these aggressive budget increases centred on bolstering social services, education, healthcare, and infrastructure. While these investments are important, the sheer scale and pace of spending expansions raise the question: What happens when revenue streams, buoyed by one-off surpluses, can no longer meet these elevated spending levels?

Leadership Failure During the 2020 Riots

In addition to the fiscal challenges, Governor Walz's leadership during the riots following the death of George Floyd has left many Minnesotans questioning his ability to respond effectively in times of crisis. The civil unrest that engulfed Minneapolis and other parts of the state during the summer of 2020 was one of the most destructive periods in Minnesota’s modern history. Widespread looting, property damage and arson devastated communities, with Minneapolis alone suffering over $500 million in damages, while countless businesses, many of which were minority-owned, were destroyed.

Governor Walz faced criticism for his delayed response, which many argue allowed the situation to spiral out of control. His hesitancy to immediately deploy the National Guard in the early stages of the riots resulted in heightened destruction. Although Walz eventually activated the Guard, critics point out that the damage had already been done by the time they were mobilized in full force.

Furthermore, while other states took swift action to prevent prolonged violence, Minnesota saw weeks of unrest. Governor Walz's approach was viewed by some as a failure to balance the need for justice with the protection of lives and property. This indecision not only scarred Minnesota’s largest city but also left many residents and business owners feeling abandoned by their government.

The impact of these riots is still being felt today, with ongoing recovery efforts and an underlying sense of unease in communities that bore the brunt of the violence. Walz's mishandling of the riots demonstrated a lack of leadership in a moment of crisis—a failure that further compounds the fiscal irresponsibility seen during his tenure.

The Looming Fiscal Challenges

Several factors complicate Minnesota’s fiscal future, including its aging population, rising healthcare costs, and the potential for economic downturns. The state is facing the following key pressures:

1. Aging Population: Minnesota’s population is rapidly aging, with retirees expected to make up a larger share of the state's residents in the coming decades. As the workforce shrinks and the demand for public services like healthcare and pensions grows, the state’s tax base may not be sufficient to keep up. Expanding government programs now will only place more pressure on future administrations to either cut services or increase taxes as the working-age population declines.
2. Rising Healthcare Prices: Healthcare costs continue to surge, both due to the aging population and broader national trends. Minnesota has already seen healthcare expenditures rise significantly, and this is likely to continue. Increased government spending on healthcare programs, without effective cost controls, risks squeezing out other essential services or further escalating the budget.
3. Future Unaccounted Spending: The state’s new programs will add recurring costs to future budgets. This spending spree includes costly social initiatives, and while these may address some immediate concerns, their long-term viability remains unaccounted for. As federal and state revenues ebb and flow with economic cycles, these programs will continue to require funding, leaving Minnesota vulnerable to budget shortfalls in the years ahead.
4. Federal Debt Crisis: Minnesota’s future fiscal health is also tied to the broader economic landscape. A looming federal debt crisis, spurred by ballooning national debt, could result in decreased federal aid to states. Should the federal government be forced to reduce spending or raise interest rates, Minnesota could find itself in a precarious position, relying more heavily on state revenues to fund its commitments.

Missed Opportunity for Reform

The missed opportunity to set Minnesota on a more sustainable fiscal path stands out in this scenario. Rather than aggressively expanding government, the $18 billion surplus could have been used for several strategic purposes, such as:

1. Tax Reform: Meaningful tax cuts could have spurred economic growth, attracting businesses and easing the tax burden on residents. Minnesota’s relatively high taxes make it less competitive compared to other states, and this could have been an ideal moment to address that imbalance.
2. Pension and Debt Stabilization: The surplus could have been directed toward the state’s pension obligations or to pay down debt. This would have eased long-term fiscal pressures and provided more breathing room in future budgets.
3. Infrastructure Investments: While the state did allocate funds for infrastructure, a larger portion could have been used to improve long-term assets like roads, bridges, and public transportation, which directly contribute to economic growth without adding to recurring costs.

Conclusion: What Comes Next?

As Minnesota’s government continues down the path of spending expansion, the state is positioned to face growing fiscal pressures in the coming years. The $71 billion budget for 2024-25 sets a high watermark that future administrations may struggle to maintain without resorting to higher taxes or significant cuts. The state’s aging population, rising healthcare costs, and future unaccounted-for spending, paired with national economic uncertainty, put Minnesota on a collision course with fiscal instability.

Governor Walz and the DFL had a chance to reshape Minnesota’s fiscal future and ensure a strong foundation for future generations. Instead, they may have squandered this historic opportunity by focusing on expanding government programs without ensuring sustainability and mishandling moments of crisis like the 2020 riots.

Minnesota’s financial trajectory, as it stands, may lead to hard choices in the not-so-distant future—choices that could have been mitigated with a more responsible and measured approach.