Minnesota Gov. Tim Walz and legislative leaders have reached a budget deal. Though with only a few days left to pass bills, they may still have to return to the Capitol for a special session to complete it.

Under the framework, the state will have a two-year budget around $66 billion to $67 billion. It aims to control spending growth in social services and education to address a $6 billion shortfall looming later this decade. That’s down from the last budget, which topped $70 billion.

It helps the state prepare for the upcoming imbalance — where spending exceeds revenue, but doesn’t completely solve the problem. Lawmakers will have to find more savings when they create the 2028-2029 budget.

Leaders also agreed to cut off MinnesotaCare health insurance coverage for adults in the U.S. without legal immigration status. Republicans got Democratic-Farmer-Labor leaders to agree to the change by preserving coverage for children, but a large number of DFLers still strongly object.

Walz: ‘No one got everything they wanted’

The DFL lawmakers protested outside and pounded on the door to the governor’s reception room in the Capitol on Thursday as Walz, DFL Senate Majority Leader Erin Murphy, Republican House Speaker Lisa Demuth, and DFL House Leader Melissa Hortman briefed reporters on the deal.

“We came up with a budget that is fiscally responsible, puts Minnesota on a continued path to fiscal responsibility, making cuts where they are needed but investing in our people,” Walz said. “No one got everything they wanted. There were very difficult conversations about issues that were very dear to each of these caucuses.”

Walz said the protesting lawmakers outside his office were a sign that there’s still a lot of work to do. With the targets now in hand, committees in the House, tied 67-67 between the parties, and the DFL-majority Senate will work to craft budget bills within the parameters of the “global” deal.

The legislative session ends on Monday and leaders said it’s still possible that the Legislature could pass all its budget bills on time.

But if they can’t reach the finish line by midnight on Monday, Walz will have to call a special session so lawmakers can return to the Capitol, Legislative leaders said they expect it would be short — lasting a day or two.

“With the very unusual start we had in the Minnesota House of Representatives, it is good to be with you at this point,” Demuth said, noting that the first three weeks of session were complicated by a power struggle between the parties in the closely divided House.

“The global targets that we have come up with today demonstrate that in this division in the Legislature so closely divided, that we have agreed to do what is best for Minnesotans … making some hard decisions and overall doing what is best.”

Republicans say the state grew spending too much in 2023, when DFL-controlled state government increased the two-year budget by nearly 40% to more than $70 billion, used a considerable amount of a record $18 billion surplus and introduced billions in new taxes and fees.

Demuth said the nearly $5 billion drop in spending was a step in the right direction.

Murphy and Hortman acknowledged that it was hard to agree to the GOP-backed MinnesotaCare cuts, which currently provide health care to around 17,000 people who don’t have legal immigration status, but that to keep the state government functioning, they had to make concessions.

“We go into that with eyes wide open, that this will change people’s lives, in some cases substantially for the worse,” Hortman said. “But it is a compromise, and under the compromise, we will be funding state government in the state of Minnesota.”

Opposition on insurance cuts

Members of the Senate and House People of Color and Indigenous Caucus held a news conference after the budget briefing to speak out against the proposal, which will cut off benefits at the end of 2025.

“We’ve got individuals who are currently receiving cancer treatments, that are currently receiving dialysis care; those individuals at the end of the year will lose access,” said Rep. Cedrick Frazier, DFL-New Hope. “We can not vote for that, we are not ready to accept that for our neighbors, for our friends, for our families.”

Republicans wanted to cut the benefit because enrollment in the program ended up being three times higher than originally expected.

They argue that number will continue to grow because it would make the state draw more people seeking benefits.

Other changes

Beyond the MinnesotaCare cuts, the budget agreement calls for several other changes, including closing the state prison in Stillwater in the next four years.

It also makes a few adjustments to taxes. Walz’s proposed reduction of the overall state sales tax rate and the creation of a new tax on services like accounting and legal advice did not make it to the final deal.

Minnesota’s paid family and medical leave program, created by DFLers when they had control of state government in 2023 and set to begin in 2026, remains in place. Though Republicans got DFLers to agree to a small reduction in the payroll tax that will fund the program.

A plan to sunset unemployment insurance for hourly school workers, another DFL-created benefit from 2023, likely will go away as the Senate and House work on their pre K-12 education budgets, Hortman said. Proposed cuts to state aid for private schools are also off the table, something Republicans wanted.

There will be a small increase to the sales tax on cannabis. The deal also calls for the repeal of a data center electricity tax exemption, though there will be an exemption for research and development for those companies as well.

Absent from Thursday’s budget deal announcement was Senate Republican Minority Leader Mark Johnson, who didn’t sign the agreement. Johnson was part of negotiations, and said there were many areas of the targets his caucus backs.

“While the final deal includes some needed reforms, it falls short of acknowledging we need bipartisan support to stop the harmful progressive policies hurting small businesses and working families,” he said in a statement.