REGIONAL- It took a single marathon day, a raft of last-minute deals, and more than a few hoarse floor speeches, but Minnesota lawmakers wrapped up their budget work during a special session on Monday, bringing an end to one of the most unusual and politically divided sessions in state history.
In just over 21 hours, the Legislature passed 14 bills, finalizing a $66 billion, two-year state budget that’s roughly eight percent smaller than the record-breaking package passed two years ago. The House adjourned just before 11 p.m., with the Senate returning from recess to finish its work around 2 a.m. Tuesday, five hours ahead of the designated deadline.
The budget agreement, forged between DFL and Republican leaders in the weeks following the regular session’s May 19 adjournment, earned praise from Gov. Tim Walz.
“I think at the end of the day, this is a sausage-making situation,” Walz said. “We had some really good sausage that we were able to get done.”
He later called the bipartisan compromise “the most impressive achievement” he’s seen “as both a legislator and as the executive” in two decades of Minnesota politics.
The most sweeping changes came in the human services budget. The $16.8-billion package includes more than $1.1 billion in reductions across two bienniums, with $270 million in cuts slated for the 2026–27 cycle alone.
Medical Assistance took the brunt of the cuts. Lawmakers capped growth in the Disability Waiver Rate System to four percent of the Consumer Price Index, a change expected to save $186.1 million. Limits on additional waiver rate exceptions contributed another $52 million.
Other reductions included:
• $57 million from the nursing facility surcharge.
• $41 million from changes to nursing home payments.
• $23 million each from limits on individualized home supports and asleep-rate night supervision.
• $16.7 million from inpatient competency exam reforms.
• $15.4 million from waiver authorization restructuring.
Some small increases were carved out for direct care and treatment programs.
Education steady
While the human services budget saw significant trimming, education funding was largely held steady. The K-12 bill maintains current per-pupil spending and preserves several high-profile DFL initiatives from 2023, including free school meals and unemployment insurance for hourly school workers.
However, the bill also created a blue ribbon commission tasked with identifying $250 million in special education savings by mid-2027. If lawmakers don’t act on its recommendations, the Department of Education will be required to implement the changes.
Tax bill
The omnibus tax bill added $118 million in revenue for the upcoming biennium and $190 million for the next, primarily through changes to cannabis taxation and data center exemptions.
The gross receipts tax on recreational cannabis will rise from 10 percent to 15 percent. Meanwhile, lawmakers repealed a provision in the original cannabis law that would have sent 20 percent of that tax revenue to local governments, ending the short-lived Local Government Cannabis Aid (LGCA) program.
A provision for repealing the electricity tax exemption for energy-hungry data centers, was included. However, other tax breaks for data centers, including exemptions for computers and cooling systems, were extended.
The bill also finalized 19 special local tax increment financing (TIF) provisions and extended pooled increment authority through 2026 for job-creating projects. A proposal to permanently authorize local sales taxes failed to make the final package.
Other items
• More than 600 Iron Range mine workers laid off when their mines were idled will receive extended unemployment insurance.
• Legislators allocated $3 million for the Local Road Wetland Replacement program in the general fund budget, supplementing $5 million included in the bonding bill.
• Electric vehicle registration fees were increased from $75 to at least $150, with new fees for plug-in hybrids as well. Both will decline in 2027 when a per-kilowatt hour fee on public chargers takes effect.
• Minnesota’s popular but uneven e-bike rebate program was restructured into a lottery and limited to residents with disabilities or lower incomes.
• The omnibus environment bill doubled the water appropriation fees paid by municipal water systems to the Department of Natural Resources, the first such increase since 2008.
Hospitals retained the authority to charge facility fees at affiliated clinics and gained access to enhanced federal payments through new Medicaid waiver provisions.
A standalone bill set new regulations for large-scale data centers to help mitigate their environmental and energy impacts.
Heath care cut for undocumented
Among the most contentious elements of the budget deal was the repeal of MinnesotaCare eligibility for undocumented adults. The provision, demanded by Republicans, was included to help secure votes for the overall package.
Children will remain eligible for coverage, but adult recipients will lose it at the end of the year.
The House vote drew emotional testimony. Rep. Kaohly Her, DFL-St. Paul, shared that she had once been undocumented herself, saying, “I was illegal,” before clarifying her family are now American citizens.
Speaker Emerita Melissa Hortman, DFL-Brooklyn Park, was the lone DFLer to vote in favor, as part of the negotiated agreement.
“I knew that this was going to be a difficult negotiation,” said Senate Majority Leader Erin Murphy, DFL-St. Paul. “But of the things we worked hard to achieve in 2023, almost all of them are preserved.”
Bonding bill
In question for most of the session, a long-awaited bonding bill was passed, providing $700 million in general obligation bonds and $10.5 million in general fund appropriations. It funds a backlog of infrastructure projects, including water systems, roads and bridges, public housing rehab, and state facility upgrades.
The bill includes major state investments in higher education, public safety, and corrections, but for many rural communities, the most consequential funding targets water infrastructure and transportation.
Minnesota State Colleges and Universities will receive $84 million, including $60 million for asset preservation through the HEAPR program. The University of Minnesota was granted another $60 million. Public safety investments include $67 million for a new Bureau of Criminal Apprehension office and lab in Mankato. The Department of Corrections will receive $40.4 million, most for facility repairs and $7.4 million for programming space at Lino Lakes.
A substantial $176 million will be distributed through the Public Facilities Authority for drinking water and wastewater projects. That includes $87 million for the Water Infrastructure Funding program, split evenly between clean water and drinking water. Projects will be selected based on priority lists maintained by the Pollution Control Agency and Department of Health.
Another $39 million will help meet federal match requirements for Minnesota’s clean and drinking water revolving loan funds. The bill also provides $32 million for Point Source Implementation Grants to assist municipalities with costly treatment upgrades, and $18 million to address newly regulated “emerging contaminants.”
The Pollution Control Agency receives $12 million — half for mitigation of drinking water contamination from hazardous substances, and half for capital assistance to improve solid waste systems.
Transportation infrastructure receives $80 million. The Local Road Improvement Program is allocated $47 million, including $5 million for township roads. The Local Bridge Replacement Program receives $31 million, with $11 million set aside for major bridge projects. Smaller amounts support rail grade crossing improvements and freight rail enhancements.
Environmental investments through the Department of Natural Resources total $44 million, including $33 million for state recreation and conservation asset preservation, $9 million for flood mitigation, $1 million for accessibility upgrades, and $1 million for reforestation.
The Board of Water and Soil Resources receives $5 million to restore wetlands impacted by road projects, helping the state meet environmental offset requirements.
More work ahead?
Despite bipartisan support and a sigh of relief from many corners of state government, lawmakers may not be done, depending on what happens with Congress and proposed deep funding cuts that will impact states.
“I’m worried that Congress will act in July and make deep cuts to Medicaid in particular,” Murphy said. “If the cuts are as deep as they’re talking about, we will have to come back to balance the budget.”