DFL deficit: As legislators race for the finish, cost of DFL’s three-week boycott becomes clear

The setting

Minnesota’s legislators have until next Monday to finalized a budget for the 2026-2027 biennium, and there is still a lot of work to do.

The setting is the fact that Minnesota’s state government spending outstripped revenues by $4.7 billion in 2024, is forecast to outstrip them again by $4.5 billion this year, and to still outstrip them in 2029, by $2.1 billion. All this adds up to a state government budget deficit of $3.5 billion in the 2028-2029 biennium, or $5.1 billion if you account for inflation.

This flood of red ink is the result of an explosion in state government spending. Minnesota’s state budget increased by 10.4% from 2022 to 2023 and a further 29.5% the following year. Even $10 billion in tax increases were not enough to pay for all this.

The question dominating state politics and policy is, then, how to fix the fiscal mess the DFL “trifecta” created: spending cuts, tax hikes, or some combination of the two?

The state of play

Republicans, who hold half the seats in the House and can block whatever they like, have been clear that tax hikes are off the table. Indeed, the House tax bill contains no tax increases. By contrast, in the Senate, where the DFL has a majority, the tax bill contains $365 million in tax hikes, including a much heralded tax on social media use. Neither bill contains the Governor’s proposal to cut the sales tax rate but apply it to more things so that, overall, Minnesotans pay more tax.

All parties propose some spending cuts, but reconciling these will not be easy. In Health and Human Services, which makes up about a third of the budget, Governor Walz proposes about $350 million in cuts to disability waiver spending while the House and Senate have passed bills calling for around $300 million in cuts, though even these need to be reconciled. The Senate bill relies heavily on cuts for nursing homes, while the House bill does not, with Republicans pointing to the growing cost of providing free healthcare to illegal immigrants. Nursing homes, they argue, should not be gutted to pay for this.

The pre-K-12 education budget, which makes up another third of state spending, is another area of conflict. The Governor, who ran on a “One Minnesota” slogan, proposes cuts to special-education transportation spending, which Republicans oppose because of its impact on rural school districts. Another measure passed by the DFL “trifecta” in 2023 extended unemployment insurance to hourly school workers, with state funding to 2027 but local authorities covering the bill after that. This promises to impose a heavy burden on local governments and push property taxes up. At one point, a deal was struck between the Republicans and DFL to end the benefit in 2028, but the DFL reneged under pressure from the unions.

Down to the wire

“We have passed almost all our budget bills,” DFL Senate Majority Leader Erin Murphy told Kare 11. “We’re waiting for three big budget bills to come over from the House: Education, taxes and health and human services.” The tax bill should get a floor vote this week, but the others are being held up by internal dissention within the House DFL over whether to cut unemployment insurance for hourly school workers, and between the two parties, as the House DFL looks to cut nursing home payments while Republicans look to cut free healthcare for illegal immigrants.

If legislators don’t pass a budget by next Monday, they’ll have to return to the Capitol for a special legislative session to do it, or the state government will shut down on July 1. Those three weeks the House DFL spent boycotting the legislature at the start of this session sure would come in useful right about now.