What do we know about the budget deal?

Yesterday, amid chaotic scenes at the Capitol, Governor Walz, Senate Democrats, and Republicans and Democrats from the House, announced an agreement on spending targets for the upcoming two biennia, a crucial step towards getting a budget deal done.

The topline

Here is what we know…

Over the next two years, the biggest cuts are to human services ($270 million), transportation ($115 million), and health ($98 million). The state government will spend $283 million less in the 2026/ 2027 biennium than was forecast in Minnesota Management and Budget’s February forecast. The cuts in the 2028/2029 biennium are steeper, with $420 million coming out of K-12 education, a quarter of the overall spending reduction of $1.8 billion.

The devils and the details

Exactly what form those cuts take remains to be seen, but some things we do know. The deal will “roll back health care coverage for undocumented immigrant adults [and] close the Stillwater prison,” according to the Star Tribune. It will also “fully fund the summer unemployment insurance [four hourly workers] for the next two years.” This seems to indicate that the state will fund this mandate rather than pass it on to local governments to fund with property taxes.

The Minnesota Reformer reports that:

There are some areas of the state budget — including education and some parts of DHS — that automatically increase each year to account for inflation.

In the areas of the budget where inflation adjustments aren’t automatic, however, lawmakers are opting not to give agencies a funding bump to cover their expected cost increases over the next two years.

MPR News reports that:

— The biggest spending reductions are in social service programs, although that is likely to occur through curbing growth rates more than cutting existing funding levels.

— Overall, education spending is held flat in the next two year budget and planned increases for the two years after that would be curtailed. Proposed cuts to money that nonpublic schools get for transportation and supplies are off the table, which Republicans wanted.

…

— Transportation-related spending was also drawn down, but some of that could be offset by other pots of dedicated revenue.

On the revenue side, “Walz gave up a proposal to reshape the state sales tax, although there was a slimdown of exemptions for companies behind massive data centers.” It appears that they will have to pay sales tax on their electricity in future, like other Minnesota businesses. The deal also increases the state tax on recreational cannabis products, but the proposed tax on social media use seems to be dead.

“The leaders also agreed to tweak the state’s new paid family and medical leave program, scheduled to start Jan. 1,” the Star Tribune reports, “reducing the ceiling of a payroll tax on employers and employees by 0.1%, Demuth said.” Without changes to coverage, however, all this does is set the shaky scheme on an even flimsier footing.  

Bipartisanship…finally

Gov. Walz, with his eye on a presidential run in 2028, drew a parallel between the bipartisanship in St. Paul and the acrimony in Washington D.C. “Amid partisanship and division in Washington, Republicans and Democrats are proving that here in Minnesota we can still work together to get things done,” he said.

Of course, this spirit of bipartisanship was forced upon the governor and DFL generally by Republicans winning 67 House seats in November to tie that chamber. In 2023, when the DFL held its “trifecta” and embarked on the orgy of spending which brought on the current budget crisis, he was boasting: “Right now, Minnesota is showing the country you don’t win elections to bank political capital—you win elections to burn political capital and improve lives.” Out of 201 legislators in the House and Senate, there are 101 Democrats and 100 Republicans. Margins matter.