The proposal includes a mix of tax credits, a first-of-its-kind state sales tax cut and new levies on tech companies.
ST PAUL, Minn. — Gov. Tim Walz on Tuesday released his 2026 supplemental budget proposal at the St. Paul Eastside YMCA, outlining a plan he said is aimed at lowering costs for middle-class families, helping workers navigate disruptions tied to artificial intelligence, responding to Operation Metro Surge and maintaining Minnesota’s record of balanced budgets.
Under the proposal, the state would cut $370 million in spending in fiscal year 2029 and reduce the structural deficit by nearly 20%. By slowing the growth of programs that have been major drivers of increased spending while minimizing impacts on eligibility and service levels, the administration projects a $1.8 billion balance for fiscal years 2028-29.
“As families see higher prices and more economic uncertainty, we’re proposing legislation to make everything from child care to housing, to property taxes more affordable for middle-class families,” Walz said. “This is a fiscally responsible plan that cuts spending to maintain a balanced budget while preparing our economy and our workforce for the challenges of artificial intelligence.”
Lowering costs for families
The budget includes a series of measures to ease household expenses. Walz proposes offsetting rising child care costs through refunds and an expansion of the Dependent Care Tax Credit. The changes would benefit an estimated 104,800 families with young and school-aged children by increasing the maximum allowable expenses by $3,000 for one child and $6,000 for two or more children under age 5.
Housing-related investments include $33 million for permanent supportive housing and $34 million for down payment assistance for first-time homebuyers. The proposal also calls for a cut to the statewide sales tax of 0.075%, which the administration described as the first sales tax cut in state history.
Supporting workers amid Artificial Intelligence
Citing rapid changes driven by artificial intelligence, the governor’s plan seeks to prepare workers and businesses for shifting economic conditions. Walz proposes a social media tax on technology companies with more than 100,000 monthly users, with revenue dedicated to workforce and economic development initiatives focused on AI adoption and other emerging technologies.
The budget also calls for the creation of a Governor’s Council on the Future AI Economy. The council would guide how funds should be invested to support innovation while ensuring Minnesotans benefit from technological change.
Operation Metro Surge response
The supplemental budget prioritizes recovery efforts related to Operation Metro Surge, which the administration said had significant financial and societal impacts on families, children, schools, businesses and the broader economy.
Proposed investments include $10 million in partially forgivable loans for businesses that experienced significant revenue losses and $10 million for the Department of Human Services’ Human Services Response Fund to support the health and well-being of Minnesotans. The plan also provides rental assistance for 9,150 renters through the Family Homelessness Prevention and Assistance Program.
Gun violence prevention and security
Walz’s proposal builds on previous gun violence prevention efforts with a broad set of measures. They include proposals to ban military-style assault rifles and high-capacity magazines; require safe storage of firearms and reporting of lost or stolen guns; close the ghost gun loophole; and implement a firearm insurance requirement.
The budget also proposes a firearm and ammunition tax and expanded early intervention resources, including school-based supports. Additional public safety measures include increased penalties for impersonating a police officer and funding for Capitol security enhancements.
Fraud prevention and financial integrity
The plan includes new steps to protect taxpayer dollars and strengthen oversight across state government. Proposals include increased detection and oversight, stronger investigative and enforcement authority, and higher criminal penalties.
The budget would establish a Statewide Office of Inspector General, prohibit legislatively named grants, add capacity to the Attorney General’s Medicaid Fraud Unit, and strengthen program integrity at managed care organizations. It also allocates $30 million over three years to modernize the state’s legacy information technology systems.
Health care coordination
Walz said he plans to work with the Legislature this session to find a path forward to preserve Hennepin County Medical Center, describing it as an important statewide asset. He has tapped former Minnesota Department of Health Commissioner Jan Malcolm to work with hospital and health system leaders across the state to address financial challenges facing providers, strengthen coordination between the state and hospital systems, and develop recommendations.
The supplemental budget proposal now heads to the Legislature for consideration during the current session.
