Divided MN Legislature will have to pass budget with looming shortfalls this session

While the results of a few Minnesota House elections still aren’t final, one thing is certain — when lawmakers return to the state Capitol in January, they’ll have to figure out how to pass a two-year budget with a divided government and a limited budget surplus.

It’ll be an odd-numbered year at the Legislature, and that means lawmakers are required to get spending and taxes in order for the next two years by the end of June. The Democratic-Farmer-Labor Party still controls the Senate and governor’s office, but they’ve lost control of the House.

With potential budget shortfalls on the horizon and the House headed toward an even split between Republicans and DFLers after the election, you can expect the 2025 session to be significantly less ambitious than 2023.

Tied House

If this year’s election results hold, there will be a 67-67 seat tie between the DFL and Republicans in the House for the first time since 1979.

So far, House leaders of both parties have expressed optimism regarding their ability to reach a power-sharing agreement in the chamber. They’ve already split control of committees, though the question of who will serve as speaker remains.

“We’ve got a historic opportunity here in Minnesota with a tie in the house, and that is going to bring everybody to the table,” Republican Minority Leader and House Speaker-Designate Lisa Demuth of Cold Spring told reporters after a meeting with DFL lawmakers and Gov. Tim Walz on Thursday.

Current House Speaker Melissa Hortman, DFL-Brooklyn Park, had similar sentiments immediately following the election, noting the results were clear that Minnesota voters want balance.

“What they’re asking us to do is to work together and be productive, and we are fully prepared to do that,” Hortman said.

So far, the negotiations over power-sharing haven’t grown as acrimonious as they were in the last tied House in 1979. But divided government doesn’t have a great track record of getting budgets passed on time. Every time there’s been divided government in the last decade, legislators had to return to the Capitol for a special session.

In 2021, 2019, 2017 and 2015, divided Minnesota Legislatures reconvened for special sessions to finish up the budget after running out of time during the regular session. The only times it didn’t happen over the last decade were in 2013 and 2023 — when DFLers held the Senate, House and governor’s office.

And in 2011, a divided government didn’t pass a budget before the June 30 deadline, leading to a government shutdown.

So while leaders have signaled optimism about cooperation during the coming session, it’s yet to be seen how long that will hold.

Looming shortfall

Minnesota’s financial picture is still looking good for the next two years, per a state analysis from earlier this year, but there could be difficulties on the horizon.

Minnesota was headed into the upcoming session with a $3.7 billion budget surplus for the upcoming biennium, according to a February projection from the state Department of Management and Budget.

But despite the surplus for 2023-2025, state budget officials warned higher costs for health and human services and education could result in a “negative structural balance” in 2026 and 2027. That is to say, the state will be spending $1.5 billion more than it takes in in those four years.

It’s not technically a deficit, they said, but it means the state will have to be careful about increasing spending. In February’s projections, state officials found that Minnesota would have shortfalls if it spent more than $2.2 billion. Regardless of where that final figure ends up, the Legislature likely won’t be able to grow spending as in 2023.

Projections are in flux. In December, officials will present updated revenue numbers ahead of the 2025 session. The $3.7 billion surplus figure came after the office initially said in December 2023 that the surplus was about $2.4 billion. Regardless, state finances appear more constrained than last session.

Budget growth

Minnesota’s budget has grown steadily in the last decade or so, though last year saw the biggest leap. The last biennial budget grew state spending by around 38%, to about $72 billion. DFLers said a lot of that money was one-time spending tied to the historic $17.5 billion budget surplus. They spent it on things like tax rebate checks and creating a paid family and medical leave program.

The budget increase in 2023 was significantly higher than past increases, which generally kept somewhat close to the pace of inflation. Adjusted for inflation in 2023, the 2021 budget was around $63 billion, so in 2023 the inflation-adjusted budget increase was closer to $9 billion.

That’s a lot higher than past increases, which generally fell within the $1 billion to $2 billion range.

For perspective, the 2021 two-year budget was $52 billion versus $48 billion in 2019. In 2017, the state two-year budget was $46 billion versus $41.5 billion in 2015.

Key dates

The Minnesota Legislature convenes on Jan. 14, 2025, and the session ends on May 19. If lawmakers don’t pass a budget by then, the governor will have to call a special session to complete budget work or risk a government shutdown when the current budget expires on June 30.

The first big step will be the November budget forecast, which the Minnesota Department of Management and Budget presents to the public in December. The revenue and spending projections serve as the initial framework as the governor and lawmakers begin planning the upcoming two-year budget.

Typically in late January, the governor releases his budget recommendations to lawmakers in what serves as a sort of starting point for negotiations. But the real conversations won’t begin in full until February when MMB releases its forecast update.

It’s possible that this year, lawmakers may also discuss a public works borrowing bill, or bonding bill, as they didn’t pass one last year.

Minnesota two-year budgets from past years

• 2023 — $72 billion

• 2021 — $52 billion

• 2019 — $48 billion

• 2017 — $46 billion

• 2015 — $41.5 billion

• 2013 — $38 billion

• 2011 — $35.7 billion