Budget Negotiations Continue as Legislature Prepares for Special Session

Conference committees shifted to working groups as state leaders push to finalize budget agreements.

On May 19, the House and Senate adjourned the 2025 regular legislative session without passing several key budget bills needed to prevent a partial state government shutdown. After adjournment, expectations shifted toward holding a special session in the near future to finish the unresolved budget areas.

Conference committees transition to working groups

While lawmakers passed some budget bill during the regular session, many remain unfinished. Conference committees that were unable to reach agreements before the deadline have now transitioned into working groups. Several of these groups have begun meeting publicly and are making progress toward final agreements before a special session is convened.

Environment and Natural Resources Working Group update

The Environment and Natural Resources Working Group has reached a budget agreement, but must still agree to what policy provisions will be included in their final package.

View the environment and natural resources budget spreadsheet (pdf).

This budget covers several state agencies and organizations, including the Minnesota Pollution Control Agency, Department of Natural Resources, Board of Water and Soil Resources, Minnesota Zoo, and the Science Museum of Minnesota. Based on recommendations of the Legislative-Citizen Commission on Minnesota Resources (LCCMR), it also includes environmental funding administered through the Metropolitan Council and project funding through the Environment and Natural Resources Trust Fund.

Taxes Working Group update

The Taxes Working Group met four days during the week of May 19. Meetings will continue during the week of May 26 as members work toward a deal.

Under the joint budget targets reached by legislative leaders and Gov. Tim Walz, the group must raise taxes or cut spending by $118 million in fiscal years 2025-2027 and $190 million in fiscal years 2028-2029. As a part of the joint target agreement, the bill must raise revenue through narrowing a current tax exemption for data centers, repealing the local cannabis aid account, and increasing the cannabis gross receipts tax from 10% to 15%.

The group has adopted some provisions for the final bill, including:  

• All special tax increment financing (TIF) provisions from the Senate’s bill.
• New TIF authority for St. Cloud.
• Amendments to the Bloomington TIF.
• An extension of the temporary flexibility provisions until 2026.

The Senate proposal includes a $4.25 million reduction to local government aid (LGA) beginning in 2026. It would also reduce county program aid (CPA), Local Homeless Prevention Aid, and Local and Statewide Local Housing Aid by $4.25 million each. In contract, the House proposes reducing aid to soil and water conservation districts by $2 million and aquatic invasive species prevention aid by $2.94 million.  

• View the Senate omnibus taxes bill budget spreadsheet (pdf).
• View the House omnibus taxes bill budget spreadsheet (pdf).

The two chambers also differ on local sales tax authority. The Senate plan would allow cities and counties to adopt a general sales tax with voter approval, while the House proposal would extend the current moratorium on sales tax proposals through June 30, 2026, and calls for forming another working group to study the issue.

Workforce, Labor, and Economic Development Working Group update

The Workforce, Labor, and Economic Development Working Group met on May 22 to review areas of agreement on both the jobs and labor budget spreadsheets, and adopt most of the agreed-upon policy provisions that were left unresolved at the end of session.

• View the jobs budget spreadsheet (pdf).
• View the labor budget spreadsheet (pdf).
• View the workforce, labor, and economic development policy provisions (pdf).

The global budget deal reached in the final days of session includes the following changes:

• A $28 million reduction to the jobs budget for fiscal years 2025-2027 and $38 million reduction for fiscal years 2028-2029.
• A $2 million increase to the labor budget in fiscal years 2025-2027 and a $1.2 million increase in fiscal years 2028-2029.

The only remaining point of contention in the working group involves a 2023 law that prohibits employers from requiring employees to sign nondisclosure agreements.

No major policy changes were made to either the Minnesota Paid Leave program or earned sick and safe time law enacted in 2023. The only adjustment is a slight reduction to the maximum premium rate for Paid Leave from 1.2% to 1.1%. The rate is currently set at 0.88%.

Remaining budget bills

The following budget areas still need to be passed by both chambers:

• Capital investment
• Commerce
• Energy
• Health/children and families
• Higher education
• Human services
• K-12 education
• Transportation

What’s next?

Legislative leaders and Gov. Walz remain optimistic that the state budget can be finalized in a one-day special session in the coming weeks. Originally, they aimed to hold the session before Memorial Day and complete the budget before June 1, which is the date that layoff notices would need to be sent to affected state employees.

Only the governor can call a special session. Once convened, the Legislature determines what to pass and when to adjourn. The expectation is that Gov. Walz will call a special session once agreements are reached on all outstanding budget items.

Read more news articles.