Republican Gov. Tim Pawlenty and leaders of the DFL-controlled Legislature have reached a deal on how to solve the state's nearly $3 billion budget deficit.
With less than an hour before the Legislature's deadline to approve bills, DFL leaders emerged from a closed-door meeting at the governor's office to announce the deal.
Pawlenty has agreed to a brief special session to give his staff and legislators time to review the agreement.
The House began a special session just after midnight, and the Senate followed. Both bodies were expected to pass the legislation by sunrise.
DFL House Speaker Margaret Anderson Kelliher said the deal includes the option for Pawlenty or the next governor to opt in to an early expansion of Medicaid, which would bring federal dollars into the state. Democrats have also agreed to get rid of the surcharges they wanted to place on hospitals and other health care providers.
Pawlenty has agreed to reduce cuts to health and human services, and Democrats agreed to protect certain areas of the budget, including public safety and veterans. There will be a $1.9 billion delayed payment to school districts, but Kelliher said there's money in the agreement to pay back schools next year.
In addition, Pawlenty agreed to put an extra $10 million toward General Assistance Medical Care, which Democrats said was needed to help rural hospitals.
Democrats also agreed to many of the unilateral cuts Pawlenty made last summer to balance the budget, including a $300 million cut in payments to city and county governments.
Pawlenty said he was pleased with the agreement.
"The process is sometimes a little bumpy but the result is usually good, and that's the case this year," he said. "This is a good result for the people of Minnesota. It's a bipartisan result. It reflects the priorities that I think will serve the state well."
Kelliher said Democrats are also pleased.
"We feel good about this point of the session," she said. "The budget will be balanced."
Senate Majority Leader Larry Pogemiller said the brief special session would ensure the budget legislation was error-free.
"It's just a question of processing copies of the bill and allowing the governor's office to review the details so that there are no mistakes," he said.
Work on the budget has dominated the past week at the State Capitol. Lawmakers initially were dealing with only a $536 million budget deficit, but it quickly grew to nearly $3 billion after the state Supreme Court ruled that Pawlenty overstepped his authority when he unilaterally cut the state budget last summer.
The deal was reached after more than nine hours of back-and-forth negotiations that involved several offers and counter-offers.
The main point of contention throughout was Democrats' insistence on expanding Medicaid to cover some Minnesotans on two state-sponsored plans. The federal government will fully fund the expansion in 2014, but states wanting to expand early must pay for part of it.
Republicans were resistant to accepting the $1.4 billion in federal money, which comes from the new health care law.
Rep. Kurt Zellers, the Republican leader in the House, said the agreement lives up to his members' demands that taxes are left untouched in "one of the toughest economic times we will ever see."
He planned to vote for the agreement, as did Senate Minority Leader David Senjem, R-Rochester. Neither would predict how many Republicans, who have been nearly unified in their opposition to past budget plans, would support this one.
(MPR reporter Tom Scheck and the Associated Press contributed to this report)