Gov. Tim Walz on Friday announced that he will call a special session of the Minnesota Legislature after reaching an agreement with Democratic-Farmer-Labor and Republican leaders on remaining pieces of a two-year, $66 billion state budget.

Lawmakers are set to convene at 10 a.m. Monday to pass major spending bills in areas including health, human services and K-12 education. Those areas alone account for two-thirds of state spending.

The return to the Capitol comes after lawmakers failed to pass a budget during the regular session, which ended May 20. Only a handful of the 20 or so bills that compose the budget have been passed.

One-day session?

Legislative leaders agreed to wrap up business by 7 a.m. Tuesday.

If they manage to get everything done by then, it could prevent tens of thousands of state employees from getting layoff notices warning of a partial government shutdown when the current two-year budget expires June 30.

Around 700 employees got the first round of notices last week. Public safety and corrections employees are not affected because the Legislature passed their funding in the regular session.Walz, a Democrat, and leaders of both parties in the Senate and House have signed off on an agreement to focus on passing the budget in under 24 hours. But there’s no guarantee that will happen.

Controversial elements of the budget — like a proposal to end state-funded health insurance for adults in the U.S. without legal immigration status — could still face pushback, complicating the quick, clean finish that top lawmakers and the governor say they want.

On the immigrant health care proposal, which is expected to move as its own bill, passage could come down to a single vote from the DFL leaders in the 67-67 tied House and one-seat DFL majority Senate.

“Certainly, undocumented adults are deserving of health care as well,” said House DFL leader Melissa Hortman. “But in order to get a budget agreement that funds the government for the state of Minnesota, this is a compromise that I was willing to make, and if it requires just my vote, then that’s how we’ll get it done.”

Last-minute changes, lengthy debate possible

Legislative leaders have agreed to stick to bills they’ve put together ahead of the special session, but nothing is stopping representatives and senators from proposing last-minute changes or engaging in lengthy debate on the House and Senate floors.

House Speaker Lisa Demuth, R-Cold Spring, told reporters Friday that while she wants every lawmaker to be heard, there has already been ample opportunity for discussion in committees and working groups.

“This isn’t an attempt to keep people quiet in any way, but we do have to fund state government,” she said.

Leaders have agreed not to support last-minute changes through amendments or pass anything other than a narrow list of bills, which are mostly tied to the budget.

The agreement also calls for a $700 million public works borrowing bill that will help pay for local projects like water treatment plants and bridges.

What’s in the agreement?

Last month, state leaders reached a budget framework that called for a two-year budget of $66 billion to $67 billion, but agreeing on details hasn’t been easy.

Leaders agreed the state will have to cut spending. Minnesota has a projected surplus of $456 million for the next two years, but it’s expected to turn into a deficit of nearly $6 billion in 2028-2029.

Lawmakers have been meeting mostly behind closed doors after the end of the regular session to hammer out details. Bill language wasn’t quite final Friday, but the state budget for the next two years will be about $5 billion lower than the last budget.

In a statement Friday, Demuth called it the “largest cut to state spending in history.”

Walz called reductions in the agreement “thoughtful” and thanked lawmakers for making tough choices.

“It is the result of hundreds of hours of good-faith, bipartisan debate on the best ways to improve the health, safety, and wellbeing of Minnesotans,” the governor said in a statement. “While all sides had to make concessions in order to reach a compromise, I’m grateful to our legislative partners for their collaboration and dedication to moving Minnesota forward.”

The smaller budget is in part explained by the expiration of one-time spending that came as part of 2023’s more than $70 billion budget that raised spending by nearly 40%.

This year lawmakers also aim to trim spending in areas like special education aid and the state Department of Human Services.

DFL defends 2023 gains

DFLers hoped to address a budget shortfall looming at the end of the decade while preserving key pieces of the agenda they enacted while they controlled state government in 2023.

While Republicans got them to agree to a few changes, DFLers succeeded in leaving new programs like taxpayer-funded paid family and medical leave and universal free K-12 school meals intact. Senate Majority Leader Erin Murphy, DFL-St. Paul, praised the compromise in a statement.

“(It) means protecting generational gains made for workers, schools, healthcare, care givers, kids, seniors, and parents, and taking important action in addressing our future budget challenges,” she said.

The most visible setback in the budget agreement is removing MinnesotaCare coverage for adults who came to the U.S. illegally, though Democrats got the GOP to agree to keep the benefit for children.

Republicans said they obtained small concessions on paid leave and another 2023 policy requiring employers to provide 48 hours of “sick and safe” time.

Under the agreement, the maximum possible payroll tax for paid leave will be 1.1% rather than 1.2%. Right now, it’s at 0.88% to be split between employers and employees.

Taxes

Taxes have been another area that has troubled lawmakers in recent weeks, though legislative leaders said Friday afternoon that there was a final agreement. A big part of the debate centered around incentives for data centers.

Now they’ve agreed to end the electricity tax exemption for those businesses but extend the length of the credit in other areas, such as hardware purchases.

It’ll now last 35 years instead of 20. The sunset date is still 2042, but if a business has a 35-year exemption, it’ll end on whichever date comes later.

Local government aid for legal cannabis enforcement is also set to see cuts. And Republicans said they wouldn’t pass a budget with new taxes, but it appears they have agreed to boost the sales tax on legal cannabis from 10% to 15%.

Transportation

As of Friday afternoon, there still didn’t appear to be a final agreement on transportation spending. A provision shifting millions in metro sales taxes to the Metropolitan Council rather than metro counties has attracted concern from local governments.

Republicans said they didn’t think the transportation bill will pass with that language included, as some DFL members may not want to deprive counties in their districts of money.

“There are some good things in this bill, don’t get me wrong, folks,” said Sen. John Jasinski, R-Faribault, the Senate Minority lead on transportation. “But I think this one kills the bill to be honest … they’re going to have a tough time voting for this because of this one provision.”