SAFF Educational Leaders:
After the prolonged election drama delaying the official start and full organization of the 2025 legislature, this budget setting session is about to pivot from what was a shortened period of hearing ‘all ideas’ to a narrowing process that will have us focus on omnibus policy and budget bills.
The legislature is only tasked with balancing the budget through fiscal years 26-27, but some want to address the longer term budget situation. FY 26-27 is balanced by a large pile-up of one-time money from the close of the current biennium on June 30. Much of the emerging deficit, almost 40%, can be attributed to “discretionary inflation” which is simply a state level planning estimate for inflationary increases to programs that haven’t been passed into law. This is different than the forecasted inflationary increase to the basic education formula which was passed into law in 2023, on an on-going basis.
A solution to 40% of the deficit is to simply avoid appropriating funding increases where none exist. However, the forecast does not include any changes that may result from pending Congressional austerity budget measures. Those changes could impact the state’s general fund, most significantly Minnesota’s Medicaid program, to the tune of billions of dollars over the next several years to come.
To address the emerging deficit, Governor Walz is now proposing a total reduction of $240 million to the E-12 budget for FY 26-27, with an impact on the tails budget of reducing E-12 expenditures by $445 million. Amidst the cuts to E-12, the Governor proposes increasing $55 million to address Compensatory Aid for one year as the state and school districts grapple with the fluctuations direct certification has on Compensatory Aid generation, specifically at the local school site level. The Governor is also proposing $30 million in one-time funding to the state’s Unemployment Insurance account to pay for next summer’s UI costs. Opening up the school district UI levy for summer term UI expenses is the only long term funding solution that has been debated. DFLers are reluctant to consider eliminating UI benefits for non-certified staff, having convinced themselves that UI benefits are a strong retention tool for districts.
The Walz E-12 cuts appear to be an attempt to spread the pain across public, private and charter schools, and teachers themselves as the most significant cuts in FY 26-27 include:
With the Walz budget plan on the table, the House, evenly tied between the GOP and DFL, and the Senate, with a slim 34-32* DFL majority must each produce a budget plan of their own. Omnibus policy bills are pending and likely to be non-controversial given the tie in the House. Policy bills are due to be passed out of their respective committees by April 4 at the latest. Omnibus budget bills are due to be passed out of their respective committees by April 11 at the latest. The House Ways & Means committee is tasked with producing joint GOP-DFL budget targets by April 1. The Senate DFL will review the House’s targets and is scheduled assign targets for their budget committees over the weekend of April 5-6.
At noon on Friday, April 11, the legislature will leave St. Paul for a Passover/Easter spring break, returning to business at noon on Tuesday, April 22. The Constitutional end date of this session is Monday, May 19. June 30 is the end of the state’s fiscal year.
*GOP leaning SD 6 is heading to a special election due to Justin Eichorn’s resignation which does not impact the overall legislative dynamic for passing bills.
We are now in a period of austerity and budget cuts. The desired increases and improvements to school district revenue streams are highly unlikely to materialize this session. One-time “fixes” to Compensatory Aid and UI are possible. The good news is that our forecasted basic allowance inflationary increases for FY 26-27, 2.74% and 3% respectively, along with the special education cross-subsidy increases, appear to be safe for now, and these funding streams enjoy broad bi-partisan support.
Educational leaders can be proud of their efforts this session, highlighting the impact of mandates on school budgets, and advocating for increases in school board levy authority (LOR and LTFM) with equalization to make these programs more fair. It’s possible some amount of school board levy authority will emerge in this process as the legislature responds to the Walz plan and the calls from schools to deal with more than $300 million in projected budget shortfalls.
We look forward to seeing you at the SAFF general membership meeting on April 11 where we will have details on the House and Senate policy and budget plans, compared to the Walz plan.
Team Capitol Hill Associates,
Sam, Nick, Britta and Brittany
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