Gov. Walz Proposes Biennial Budget

The budget proposal includes few program increases and cuts local cannabis aid.  

Gov. Tim Walz (DFL) released his proposed biennial budget on Jan. 16. The package prioritizes a reduction in the state sales tax, aid reductions, and select investment increases. This proposal marks the first step in a months-long budget negotiation process involving the Minnesota House, Senate, and executive branch.

State budget outlook

The state’s budget discussions will be shaped by the economic forecasts from Minnesota Management and Budget. The November 2024 budget forecast projects a $616 million balance, $1.1 billion lower than earlier estimates. Revenues are $992 million less than May 2024 projections, while state spending is $572 million more than had been forecasted.

Key provisions affecting cities

The governor’s budget proposal includes recommendations that would impact cities, such as:

• Sales tax reduction and base expansion

The proposal would lower the state sales tax rate from 6.5% to 6.425% while expanding the sales tax base to include additional services, generating an estimated $205 million in the next biennium.

• Repeal of the local government cannabis aid

Under the 2023 cannabis law, a 10% tax on cannabis and low-potency edible cannabinoid retail sales was set to direct 20% of revenues to local governments — split evenly between cities and counties. However, because no licensed cannabis retailers are currently operating, no aid has been distributed. The proposed budget would repeal the Local Cannabis Aid Account, reallocating those funds to the general fund. Cities were projected to receive approximately $6.5 million from this aid in fiscal year 2027.

What’s next

In the coming weeks, state agencies will present the governor’s budget to the House and Senate committees, offering further details — including potential state fee increases that may impact cities.

Later this session, Walz is expected to release his capital budget (bonding bill) recommendations. The November budget forecast assumed a $790 million capital budget in 2025, which is a reduction from the February 2024 budget projection.

By late February, Minnesota Management and Budget will release an updated economic forecast, which legislative leaders will use to shape their budget bill proposals.

View detailed information about the Gov. Walz’s budget recommendations.  

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