How the Minnesota Legislature’s struggle to complete a state budget measures up: Exceptional, terrible, or neither? 

In the prior legislative session, a governor and lawmaking majority of the same political party banded together to triumphantly enact their signature policy proposals.

But this year, the Legislature was forced to debate spending cuts after the state budget office issued a pessimistic forecast. Lawmakers adjourned from their regularly scheduled legislative session without a budget deal. 

This scenario could describe Minnesota, but it is also what happened in Iowa. 

In fact, it could generally describe the burdensome budget-writing process of states across the country. 

“This is the most difficult budget year that states have faced since the onset of the pandemic in 2020,” said Josh Goodman, a senior officer at Pew Charitable Trusts who studies state fiscal health. 

According to the National Association of State Budget Officers, of the 46 states whose fiscal year starts on July 1, just 16 have a budget signed by the governor in place for the fiscal new year. And New York enacted its budget after the Empire State’s April 1 fiscal year began. 

While each state government is unhappy in its own way, statehouses share a few common sources of misery.

The bad economic forecast

Much of why the Minnesota Legislature has struggled to write a budget can be pinned on a report three months ago from Minnesota Management and Budget (MMB). 

Related: Minnesota budget forecast: worsening tax revenue, bigger deficits in coming years

The forecast found that if the state government keeps spending at its current rate the state will freefall from a budget surplus to a $6 billion revenue shortfall by 2027. Since then, legislative committees and working groups have outlined hundreds of millions of dollars of cuts in health care, education and other core areas of state government. 

The Iowa budget debate also changed after a gloomy February forecast from that state’s Revenue Estimating Conference. As a result, Iowa lawmakers passed a one-year budget one week after their legislative session ended that takes money from a state reserve fund. 

In Indiana, the Legislature scrounged up $2 billion in cuts after the Indiana Budget Agency released their bleak fiscal forecast in December. The Indiana Capital Chronicle described the forecast as “a sharp turnaround from the flush financial fortunes of the last budget cycle.”

“We are hearing from a number of states about how expenditures are outpacing revenue growth,” said Kathryn Vesey White, director of budget process studies at the National Association of State Budget Officers. “Most states that have released updated forecasts in recent months have revised estimates downwards.”

Part of the reason why is that different states rely on the same advice. Like Minnesota, S&P Global Market Intelligence advises Indiana. In both states’ economic forecasts, there is an emphasis on Trump administration policies, including tariffs and tax cuts leading to inflation and high-interest rates. 

The post-COVID fallout

According to Goodman at Pew, COVID-19 changed state government finances in two major ways: an extraordinary increase in the flow of federal money and a big jump in Medicaid enrollees. 

Not only did the Minnesota state government receive billions of dollars in COVID relief aid, but so did local governments, businesses, and nonprofit organizations, lessening the state’s financial responsibility in responding to the pandemic.

The federal influx of money helped to produce a “surge in state revenue” immediately following the pandemic, Goodman said. 

And an escalation in Medicaid enrollees happened as more people became eligible for the program, either through a loss of income or the development of a serious health condition. 

Nationally, the number of people accessing Medicaid jumped from 71.4 million in February 2020 to a highwater mark of 94.7 million in April 2023, according to the Kaiser Family Foundation. 

In Minnesota, the number of Medicaid enrollees climbed from under 1.1 million in 2019 to over 1.4 million in 2023.

Related: Minnesota Medicaid explained: Who’s on it, what it costs and what could change 

Fast forward to now and the COVID money has dried up, while Medicaid demand remains high. 

“Medicaid is costing more than states expected,” Goodman said. “States were surprised by how high enrollment stayed and that the people who stayed on the program tended to be older and need nursing home care.”

The number of Minnesotans on Medical Assistance (what the state calls its Medicaid program) has since dropped to 1.2 million today. But much of that population requires daily care, whether at home or in a nursing facility. 

A Department of Human Services budget deal reached by legislators and Gov. Tim Walz’s office last week included several spending reductions for disability care. 

The federal budget anvil about to fall 

Precariously hanging on a flimsy string over each state budget debate is how much Congress will cut from Medicaid, food stamps and other federal money pots that state governments from Massachusetts to Mississippi rely on.

States are taking a wait-and-see approach. 

“All states are facing uncertainty with respect to federal funds, and based on our monitoring, most states are taking a similar approach to Minnesota on this,” said White of the National Association of State Budget Officers.

In other words, every state may redo their budget this fall (Congress is supposed to pass a budget by Sept. 30). 

Since the Minnesota Legislature will not meet again until February after they (presumably!) complete budget bills, Walz would have to call a second special legislative session following the one he will (presumably!) announce before June 30. 

Related: Minnesota lawmakers lightly jog to legislative finish line with no budget in place

States holding tight to their priorities

While the Minnesota Legislature and Walz spent the prior two years enacting new social programs such as free school meals, the GOP-led Iowa Legislature and Republican Gov. Kim Reynolds passed tax cuts. 

To keep those tax cuts for now, Reynolds has borrowed $2 billion from a rainy day fund to balance a $9 billion annual budget. 

“There is a debate in Iowa over the sustainability of that strategy,” Goodman said. 

That debate mirrors Republicans in Minnesota, who say that “mandates” passed by a DFL majority, including free meals, unemployment insurance for hourly school workers, and paid family and medical leave, are untenable for taxpayers, county governments and school districts. 

Governors and legislative bodies in 2023 and 2024 were armed with the money to either spend more or cut taxes. But because of the icky fiscal forecast plus dwindling federal money, these fresh changes are being relitigated.  

For example, Florida is reassessing what taxes the state can cut. In the Sunshine State, Republican Gov. Ron DeSantis wants a one-time tax cut for property owners and is fighting the GOP-controlled legislature’s push to lower the sales tax. 

The budget dispute of perhaps greatest relevance to Minnesota is taking place where Walz spent part of his Saturday: California. 

Starting in 2023, undocumented immigrants of all ages in California could apply for state subsidized health care. 

But Gov. Gavin Newsom has proposed removing undocumented immigrant adults from the program in order to save money. Walz has done the same just after MinnesotaCare for undocumented immigrants began in January. 

Related: Why some DFL lawmakers say they won’t support budget compromise that phases out MinnesotaCare for undocumented adults

“This is a tough budget,” Newsom said in remarks that sounded a lot like Walz’s. “I don’t want to be in this position, but we are in this position.” 

According to the Minnesota Legislature, each of the state’s budget bills has an agreed-upon framework, except for one. That one is the Health and Human Services budget, which would fund health care for undocumented immigrants. 

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Editor’s note: This story was written by Matthew Blake, MinnPost’s state government reporter.

This article first appeared on MinnPost and is republished here under a Creative Commons Attribution-NoDerivatives 4.0 International License.

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