Gov. Tim Walz’s supplemental budget: Child care spending, Metro Surge loans

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Gov. Tim Walz released his supplemental budget on Tuesday, with investments in child care, fraud prevention, renters assistance, loans for businesses impacted by the immigration action this winter, housing support and some tax changes.
A February budget forecast showed an improved revenue outlook for the state and more wiggle room for lawmakers and Walz. The state is working with a $3.7 billion surplus for 2026-27, and what once was a $6 billion budget deficit for 2028-29 is now expected to be a $377 million budget surplus.
Budget officials warned at the forecast that the surplus for 2028-29 could easily be turned into a deficit without cautious and measured budgeting. The governor’s proposals call for an extra $63 million in spending in 2026-27, and $435 million in cuts in 2028-29.
Walz said Tuesday his changes bump up a $377 million surplus in the tails to $800 million. A large part of the cuts is to disability services, where state spending has increased over the years.
New spending
The supplemental budget also includes new spending over the next four years. Among the highlights:
• $444 million for expanding Dependent Care Credits. These are refundable state tax credits designed to help low-to-moderate-income families offset work-related expenses for child or dependent care.
• $48 million for establishing the State Office of Inspector General.
• $36 million for updating IT systems.
• $33 million in renter assistance and $10 million in loans for businesses in response to Operation Metro Surge.
“This is a smart budget. I think it’s one that we should see support across the political spectrum,” Walz said. “It is not a ’on budget year,’ we made great progress last year. I’m going to encourage the legislators to make some more progress on those structural differences, all without sacrificing that commitment that … we are and will continue to be the best state to raise a family in and for kids to grow up.”
The $444 million investment in the state’s Dependent Care Credits on top of Minnesota’s Child Tax Credit is one that the Department of Revenue Commissioner Paul Marquart said would put Minnesota’s tax system as a “pinnacle in the nation for families and kids.”
Tax changes
The governor’s budget also includes some tax changes.
One is a revived proposal from last year for what would be a first-ever reduction in the state sales tax of 0.075%, and expanding the sales tax to services from investors, bankers and lawyers. He’s also pitching a social media tax on tech companies with more than 100,000 monthly users.
“They have been using our data — they being the large tech companies, Facebook and others — and that has accumulated massive amounts of wealth concentrated in a fairly small group of folks. We’re asking them to pay their fair share, and most importantly … using those revenues that will come from that tax and starting to build for what is going to be disruptions from AI, disruptions to the workforce, and to start putting Minnesota on the forefront of planning ‘What does the AI revolution look like?’” Walz said.
The Legislature is not required to pass a budget this session, but several lawmakers and Walz are looking at measures with price tags as well as spending cuts or new sources for revenue, with the hopes of maintaining a surplus in the tails. The Legislature also is expected to pass a bonding bill this session.
‘Common themes’
Walz and caucus leaders likely will negotiate budget pieces and other measures up until the Legislature adjourns on May 18.
“We will not get everything I want. I’m sure of that, but the Legislature understands we’re focused on very common themes here. I hear the Republicans say they’re focusing on affordability. Well, if that’s true, this child dependent care credit is where you need to go right off the bat,” Walz said.
Last year, lawmakers and Walz reached a budget deal by May 15, though they needed a special session to pass pieces of it.
The feat of reaching a deal with a tied House is something Walz and other leaders frequently tout. He said Tuesday there is “every reason to believe we should reach a compromise like we did last year, finish on time, and move on.”