Minnesota’s paid family and medical leave payroll tax rises by 25% even before implementation

Minnesota’s paid family and medical leave (PFML) scheme is a study in irresponsible governance.

When the legislation was introduced in 2023, I wrote “it will mean a new 0.7% payroll tax on Minnesota’s workers, up from 0.6% in the previous proposal.” But we didn’t really know whether this was the case or not. The House Fiscal Analysis Department produces “Fiscal notes” which:

…put a price tag on proposed legislation, and are very important in the legislative process. A fiscal note should be an objective opinion on the change in expenditures and revenues that will result from a bill. Legislators need this information to make informed decisions on proposed legislation. A fiscal note may influence if a bill passes, if it fails, or if changes need to be made to the bill to adjust the cost or revenue. [Emphasis added]

Yet the PFML proposal sailed through one committee after another without one of these fiscal notes. Incredibly, it even passed the State and Local Government Finance and Policy committee, the very committee tasked with overseeing — as the name indicates — state and local government finance, without a fiscal note. So much for scrutiny and democratic accountability.

When a fiscal note appeared in April 2023, it found that “the annual cost of the PFML program has ballooned from $781 million to $1 billion, an increase of 30% in one year.” I noted that “this is based on some favorable assumptions” regarding the average weekly benefit, average weeks of leave taken, and number of recipients annually. If we adopted more realistic assumptions, the numbers would be even higher and so would the payroll tax necessary to fund it. Nevertheless, a number of sensible amendments were ignored and the bill was passed into law by the DFL trifecta.

October 2023 saw the release of a report commissioned by the state’s Department of Employment and Economic Development (DEED) from Milliman, a “worldwide provider of actuarial and related products and services.” Milliman was asked to:

…perform an actuarial analysis of the Paid Family and Medical Leave (PFML) program established in Minnesota…Our analysis focused on the expected costs of paying benefits to covered workers and maintaining solvency of the Minnesota PFML fund.

Echoing our analysis, Milliman’s report projected significantly higher benefits and administrative costs than the state had estimated. In the first three years of the program, Milliman projected total PFML expenses of $4.42 billion — roughly $628 million or 17% higher than state officials claimed while passing the bill.

Nevertheless, in the 2024 legislative session, the DFL trifecta sought to expand the scheme still further. DEED asked Milliman to conduct another analysis factoring in this expansion and, in February, they recommended 0.88% payroll tax in the first year.

This got caught up in the shenanigans at the end of that session as the DFL collapsed into complete disarray. As KSTP reported, “a bill making changes to Minnesota’s paid family and medical program that will increase taxes and the expense of the program” was being debated in the state House. Then:

Just after midnight Wednesday night into Thursday morning, DFL House Speaker Melissa Hortman had heard enough and abruptly called for a vote on the bill as dozens of Republicans were still waiting to speak.

“The clerk will take the roll on the bill,” she said calmly, catching Republicans off guard. Then there was an uproar.

“Excuse me what is happening here?!,” one lawmaker yelled, soon followed by others. “Madam Speaker, what’s going on? Madam Speaker! Madam Speaker! Point of order! Madam Speaker! You have just silenced the voice of the minority!”

…

“This is not how democracy is supposed to function,” said GOP Minority Leader Lisa Demuth. “Debate is essential to the legislative process. It’s a fundamental right that ensures all perspectives are heard and respected. Yet here we are.”

As I wrote at the time:

The record shows that what this proposal needs is more scrutiny, not less. Once again, democratic accountability takes a back seat to ramming this measure through, whatever the cost.

This 26% hike in the PFML payroll tax from its passage less than two years ago is now confirmed. The Minnesota Reformer reports:

Minnesota’s new paid leave program will launch with a 0.88% payroll tax in January 2026, which is 25% higher than what was originally proposed two years ago when the Legislature passed the law.

This sad story illustrates how Minnesota went from a forecast budget surplus of $18 billion to a forecast deficit of $5.1 billion in just two years. Our state has been governed irresponsibly and now the bill is coming due.