Disability funding, taxes at issue as MN Legislature crafts state budget

Yahoo

27-04-2025

The countdown is on at the Minnesota Capitol, where lawmakers have about three weeks to produce the next two-year state budget.
If they don't get tens of billions of dollars in spending bills on the way to the governor's desk by May 19 to be signed into law, they'll have to return to the Capitol for a special session. Barring that, the state government runs out of funding and shuts down on July 1.
When asked at recent news conferences about the prospects of a budget getting passed on time, Democratic-Farmer-Labor and Republican legislative leaders sounded optimistic.
But a few key sticking points have the potential to derail the final stretch of the session and drag the Legislature into overtime.
Republicans have been firm that they won't approve a new state budget with any new taxes, and they've resisted DFL proposals to reduce spending on disability services and nursing homes to help address a $6 billion deficit looming at the end of the 2020s.
Meanwhile, DFLers don't want to water down the programs and benefits they created while in control of state government in 2023, such as paid family and medical leave, universal free school meals, and free college tuition for families with lower incomes.
As lawmakers plot out state spending for the next few years, a health budget bill has emerged as a key issue in negotiations between the House tied between the GOP and DFL, the DFL-controlled Senate and DFL Gov. Tim Walz.
Education is another potential snag, where the governor is proposing reductions in special education that Republicans oppose.
Minnesota has a projected surplus of $456 million for the next two years, but a deficit of around $6 billion is expected for the 2028-29 fiscal year.
Republicans say the Department of Human Services cuts Walz proposed in his $66 billion two-year budget will disproportionately affect counties that rely on state aid for long-term disability reimbursements.
However, state budget officials have warned that half the budget could be long-term care by the 2030s if reimbursements aren't curbed.
Walz has proposed cutting around $5.5 billion from the state budget in the next four years, with about $1.4 billion of that from disability waivers. It appears Senate DFLers are on board with the overall cuts, though in the tied House, the cut target was around $3.8 billion.
Instead of disability waivers and other cuts, Republicans say the state should seek to address fraud and cut state-funded health care benefits for people in the country illegally, which the DFL-controlled government approved in 2023.
Higher-than-expected enrollment grew the costs of those new MinnesotaCare benefits three times more than originally expected, potentially costing the state about $600 million by 2029, Republicans said.
'We can't afford it and we're looking at cuts to nursing homes and other health and disability services,' House Speaker Lisa Demuth, R-Cold Spring, told reporters Tuesday.
DFLers disputed GOP characterizations of the program and claims of total expenses to the state. At a news conference on the state Capitol steps Thursday, Sen. Alice Mann, DFL-Edina, said the program is designed to help cover the costs that end up being absorbed by health care providers.
'That is not going to fix anything,' she said. 'Republicans are telling you that if we take away peoples' health care, that's going to fix the problem. Those are absolute lies, and it's egregious what they said. They are taking our crumbling health care system and they're blaming it on immigrants.'
Another issue in the budget negotiations is education. Republicans want to cut unemployment benefits for hourly school workers like paraprofessionals and bus drivers, another policy DFLers passed in 2023.
House DFL Leader Melissa Hortman said addressing impasses might take getting other components of the budget put together first in order to create more wiggle room on the more controversial items.
'As we get more of the bills on the table … we can start to solve the problems that are across issue areas,' she said to reporters at a news conference after Walz's State of the State address on Wednesday night. 'So it may be that something in a different arena breaks something loose in health.'
Other pieces of the budget are coming together and seeing passage out of key committees and on the floors of the House and Senate. There's been some progress so far on the veterans and housing budget bills, for instance, and others continue to move forward.
In his State of the State speech, Walz acknowledged that Minnesota had to make tough choices in order to preserve services and made overtures to Republicans to work toward a budget to keep the state in a good position amid potential uncertainty under President Donald Trump.
'This budget wasn't written to please everyone. It was written to bring everyone to the table. And when we get there, no doubt we'll have some disagreements,' Walz said.
Walz has proposed changes to the state sales tax that would modestly reduce the overall rate but introduce new taxes on services like legal advice and accounting.
Legislative DFLers also are proposing what they say is a first-of-its-kind tax on social media platforms like Facebook and X that could raise $334 million over the next four years. It is to be based on the collection of user data, which platforms profit from by selling to advertisers.
Both are non-starters for Republicans, who say the state grew spending too much in 2023, when DFL-controlled state government increased the two-year budget by nearly 40% to more than $70 billion, used a considerable amount of a record $18 billion surplus and introduced billions in new taxes and fees.
'We are one of the highest-tax states in the nation, we don't need to be going back to Minnesota taxpayers to get that money,' said Senate Minority Leader Mark Johnson, R-East Grand Forks, as GOP leaders took questions from reporters after Walz's speech.
Amid tariffs on foreign goods, cuts to the federal workforce and potential cuts to Medicaid under the Trump administration and a Republican-controlled Congress, there are concerns about potential economic impacts on Minnesota that may require lawmakers to return to the Capitol later this year.
If a recession results from U.S. trade policy or if the state loses significant federal funds, the Legislature might have to reconvene to address shortfalls. So far, however, those potential challenges have not shaped budget negotiations.
Hortman said lawmakers can't take any real action until Congress takes final action on Medicaid. Senate Majority Leader Erin Murphy, DFL-St. Paul, echoed that sentiment, telling reporters this week that the state needs to focus on the immediate needs of the state before it can pivot to potential disruptions at the federal level.
'The best thing that we can do right now is to pass a stably balanced budget that people can count on,' she said. 'And that's the work that we have to do between now and the end of the session.'
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