Minnesota House budget targets include slowing spending on human services 

The Minnesota House released its two-year budget targets, and lawmakers want to rein in human services spending to avert a looming deficit.

Minnesota’s increasing costs are outpacing revenues and could cause a projected $6 billion budget deficit in the two years beginning in July 2027.

Democratic and Republican leaders, who share power in the 67-67 House, negotiated a compromise that would leave $1.6 billion on the bottom line over the next two years and would reduce the projected budget deficit to $1.3 billion in the following biennium.

Inflation is expected to create another $1.1 billion in expenses for the state in the upcoming budget, but lawmakers say they won’t be providing inflation adjustments to agency budgets except where required by law.

That means cuts will be more widespread and deeper than reflected in the targets, as agencies will face rising costs without money appropriated to cover them. State workers — whose compensation typically comprises the bulk of many agency budgets — are sure to demand pay raises that keep up with inflation, for instance. Overall, the House’s budget framework would cut $3.7 billion from the state’s budget over the next four years.

Senate Democrats released their budget targets on Friday and also didn’t account for inflation.

Budget targets are guidelines for legislative committees, which will then add specificity to agency budgets. Targets are subject to change, and often do, as lawmakers create their biennial budget in the remaining weeks of session. The Legislature must pass a budget by June 30, though the Legislature is scheduled to adjourn May 19.

Spending on Medical Assistance, Minnesota’s Medicaid program, makes up nearly 30% of the state’s budget. The use of disability waivers, which provide services to the elderly and disabled, is rapidly increasing, as is the per-person cost of providing care. 

Budget officials estimate that if the state continues on its current trajectory, spending on Medical Assistance and DHS programs will grow from around $22 billion in the current budget to more than $27 billion by the 2028-29 budget.

Gov. Tim Walz, House leaders and the Senate DFL are all in agreement that the state should target DHS spending in order to avert a deficit. State law requires DHS to adjust disability waiver payouts for inflation every two years; Walz wants to cap the inflation adjustments at 2% per year, likely below the real inflation rate. 

That would save an estimated $1.3 billion over the next four years — the same as the House budget targets — though House leaders would not confirm that Walz’s proposal was included in the targets.

The cost of Medical Assistance is shared with the federal government. If President Donald Trump and congressional Republicans pursue new tax cuts, as some have proposed, it could lead to reductions in federal Medicaid funding. That could require Minnesota to either increase its own spending to maintain services or reduce them.

The House targets include spending cuts on health and human services, environment and a mandate that the House Taxes Committee reduce tax subsidies and/or the Local Government Aid program, or increase taxes, which Republicans oppose.

“We’re holding strong against tax increases. We know that Minnesotans are overtaxed, and we can’t put more burden onto Minnesotans at this point,” said House Speaker Lisa Demuth, R-Cold Spring.

Demuth said the “targets are an absolute win” and praised the spending reductions.

House Ways and Means co-chair Rep. Zack Stephenson, DFL-Coon Rapids, said the House could have avoided cuts in the health and human services, which will affect the most vulnerable Minnesotans, if Republicans were willing to adopt tax increases.

“These budget targets represent a compromise between Democrats and Republicans, and if Democrats were setting targets on our own, these targets would look very different. We would have asked the wealthy and large corporations to pay their fair share in order to make additional needed investments in public education and affordable health care,” said DFL House leader Melissa Hortman, DFL-Brooklyn Park, at a Capitol press conference Monday.

With the bipartisan House agreement, the Legislature is well-positioned to finish a budget by the May 19 adjournment deadline.  

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Editor’s note: The Minnesota Reformer is an independent, nonprofit news organization dedicated to keeping Minnesotans informed and unearthing stories other outlets can’t or won’t tell. 

This story was written by Michelle Griffith and Madison McVan and originally appeared in the Minnesota Reformer on March 31.

Griffith covers Minnesota politics and policy for the Reformer, with a focus on marginalized communities. McVan is a Report for America corps member who covers economic mobility.