Minnesota lawmakers wrapped up work on the 2026-2027 budget during their special session and managed to pass a $700 million capital projects bill.

Early Tuesday morning the Legislature completed work on the $66 billion two-year budget, which they failed to advance during the regular session that ended last month. Gov. Tim Walz will now have to sign it into law. It includes a narrowly passed and contentious cutting of medical benefits for undocumented immigrant adults — a move DFL leadership did not support, but voted for in a compromise to avoid a state government shutdown.

Most of the Democratic-Farmer-Labor caucus in both the House and Senate opposed the provision. Both houses are narrowly divided among DFL and Republican senators and representatives.

Large parts of state government — such as the Department of Education and the Department of Human Services — were at risk of shutting down at the end of the month if lawmakers hadn’t approved new spending. Those areas, as well as health spending, account for two-thirds of the general fund.

The House and Senate approved a dozen or so remaining budget bills, including funding for areas such as higher education, health, energy, environment and commerce.

Taxes, bonding bill

They also approved a tax package — a standalone bill making changes to data-center tax incentives and a $700 million bonding bill for projects like roads and wastewater treatment plants.

The request for $50 million in bonding funds to help pay for renovations at the Xcel Energy Center hockey arena in St. Paul failed to pass. A proposed $769 million makeover to the arena was slimmed down to a $488 million upgrade, freezing improvements to the adjoining RiverCentre convention center complex and Roy Wilkins Auditorium until a later date.

The state budget for the next two years will be about $5 billion lower than the last budget of more than $70 billion. The reduction is in part explained by the expiration of one-time spending when the state had a historic $18 billion surplus two years ago.

Special education aid is one of the biggest areas for cuts. Rather than make the reductions directly, lawmakers created a special “Blue Ribbon Commission” to explore around $250 million in cuts. The budget also aims to control growth in spending on nursing homes and disability services.

State leaders said they needed to curb spending this year to address future shortfalls. A February revenue foreca

st indicated Minnesota had 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.

A proposal to cut state funding for private schools for transportation, health services and education materials didn’t advance this session.

MinnesotaCare coverage

A flashpoint in the budget deal state leaders reached last month involved ending MinnesotaCare coverage for adult immigrants without legal status.

Coverage will end after 2025, though children will still be eligible. The benefit just kicked in this year, and more than 20,000 in total have enrolled.

Republican supporters say ending coverage will save the state money, as enrollment in the program is three times higher than expected.

However, DFL opponents decried the bill as cruel and more about demonizing immigrants than cost savings.

Tax, transportation bills

GOP lawmakers expressed reservations about the tax and transportation bills. DFLers were skeptical of provisions extending tax exemptions for data centers. All eventually passed.

The tax bill increases the sales tax on legal cannabis from 10% to 15% and ends state aid to local governments for enforcement.

Republican leadership had initially said they wouldn’t support any new taxes, and some members stuck to that pledge in the House. No Senate Republicans supported the bill.

Past state budgets

Here’s a list of past two-year state budgets:

• 2023 — $72 billion

• 2021 — $52 billion

• 2019 — $48 billion

• 2017 — $46 billion

• 2015 — $41.5 billion