Divided Legislature Faces Challenging Budget

Minnesota’s legislators will be watched closely in the upcoming session that starts Jan. 14 as they try meet the needs of the state’s citizens but also keep a watchful eye on the impact of taxes on individuals, businesses, and the farming community.
A divided Legislature and looming budget deficit will make for a lot of political theatre, but we can only hope when the curtain falls on the session in May that reasonable compromises have been worked out.
Last week, the state’s Minnesota Management and Budget officials released the November 2024 Budget and Economic Forecast with details on current state revenues and spending, and projections that go out four years.
It showed that the state’s optimistic projected surplus from last February of $1.1 billion had shrunk by nearly half to $616 million. What’s worse news is that based on projected revenues and expenditures, the state is looking at more than a $5 billion deficit by the 2028-29 biennium.
This is a budget year for the Legislature. Democratic Gov. Tim Walz’s administration is working on the budget proposal it will present in January. It is sure to be torn apart by members of the House and Senate as they use it as a template for their own goals.
Republicans are going to have a say in the budget after two years of sitting on the sidelines due to the Democratic-Farmer-Labor (DFL) Party controlling the House and Senate, along with having a governor from their party at the Capitol in St. Paul.
In last month’s elections, House Republicans picked up enough seats to create a tie in the body with 67 members each. That tie means that all power will be shared. There will be a co-speakers, co-committee chairs, and an equal number of members on each committee. Nothing gets through a House committee, or passed on the House floor, without compromise.
Addressing budget deficits is done in one of three ways – raising revenue through increased taxes, cutting spending, or implementing a combination of the two. It is likely that we will be seeing cuts. Increased taxes will be a heavily lift when many say the state’s tax burden is already too high.
House Republican committee co-chairs are sending a letter to state agency heads asking for background that could help them trim their budgets. This happens regularly at the local level. County boards and city councils ask their department heads to provide a preliminary departmental budget they can review as they set their own budgets.
Among the questions they are asking the agency heads, Peter Callaghan of MinnPost writes, are: What unfilled jobs does the agency have, how many of the new jobs created by the current budget remain open, what leases does the agency have on buildings that are less-than-full due to work-from-home policies, and how many employees are devoted to diversity, equity and inclusion programs.
These are good questions to ask. Do job openings need to be filled? What are the consequences if some are not – slower service in crucial areas? Can staff in buildings be combined and leases let lapse? And, a stickier question involves the controversial diversity, equity, and inclusion (DEI) initiatives, with the implication that the state is unnecessarily hiring and staffing some of its employees.
Minnesota’s bleak financial forecast is primarily due to falling income and sale tax revenues while costs for long-term care support and special education programs have grown rapidly.
Long-term care needs are rising in Minnesota as its population ages. Rural Minnesota is already facing a shortage of nursing homes and staff to work in those they do have. How will legislators address this challenge?
Special education programs have been expanding as state and federal mandates increase, and there are more kids who need the programs. However, school districts already do not have enough funding to cover the costs required under these mandates.
Republicans will also take a close look at programs the DFL implemented but only temporarily funded. Among the programs that could end for the coming biennium is unemployment pay for part-time public school employees who are laid off in the summer.
If the state does pay for it, and requires the program to continue, it would cost school districts in western Minnesota tens of thousands of dollars annually each. To keep those expenses from taken away from student education, districts would have to be able to increase their levy on property owners.
There are new programs within the state budget that should continue to be funded despite their cost such as universal free school lunch for children. It was estimated that the program would cost $400 million over two years. Who would have a child sit hungry in school? It is not only cruel, but it also significantly hurts their ability to learn.
Programs like this one, and those involving caring for the elderly and disabled, will be difficult to cut.
Looking ahead four years, as Minnesota does with its budgets, is good planning but it can also be full of uncertainties. It is hard to calculate budget impacts a year out due to federal policies that could be implemented, such as 25% tariffs that could reduce state tax revenues. Will America’s economy remain strong? Will Minnesota’s? If inflation increases again, if unemployment rises, if the economy cools, all can have an impact on the dollars that flow into the state’s budget.
Local government leaders are always wary of how state lawmakers address the threat of a deficit, or when one has become a reality. Mandates passed that require implementing programs and the hiring of staff are left in place, but state lawmakers shift the responsibility to funding them onto the backs of local taxpayers.
If we have a frustration with lawmakers, it’s that they are great at criticizing, but rarely provide details about the cuts they would implement. We hope they are upfront early in this session on what they will cut and where additional revenues could be raised.