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Updated: July 1, 3:30 a.m. | Posted: June 30, 6:07 p.m.

Minnesota has a new $52 billion, two-year state budget, but it didn’t come easy. 

The Legislature needed almost all the time between the end of the regular session on May 17 and the end of the fiscal year at midnight Wednesday to finish the budget. The special legislative session was one of a series over the past year and marked the first time many lawmakers were able to meet face to face in months.

The budget came together without any of the tax increases that DFL Gov. Tim Walz and House Democrats had proposed earlier in the year, when the state was looking at a budget deficit caused by the COVID-19 economic slowdown.

That deficit turned into a surplus due to better-than-expected tax collections as the economy reopened and a huge influx of federal money from pandemic relief measures.

$1.8 billion extra in Minnesota tax revenue

The extra federal money actually slowed down the final adoption of the budget, said Republican Senate Majority Leader Paul Gazelka.

“In this last go-round there was $3 billion that went directly to the state of Minnesota that we had to manage,” Gazelka said. “So, what made it difficult was, how do we spend this money and not add new programs that four years from now we’re going to have to pay for because we don’t have the money? That was extremely difficult.”

It also ended the DFL push for tax increases and shifted the focus to tax cuts. A compromise bill lawmakers debated Wednesday evening includes tax breaks for federal Payroll Protection Program loans to businesses and the extra unemployment aid that went to some idled workers. There are also other tax breaks, including credits for affordable housing construction and the restoration of historic buildings.

Prevail over tax hikes at the Capitol

Rep. Paul Marquart, DFL-Dilworth, the House tax chair, said they put together a strong bipartisan tax bill that will help benefit Minnesotans.

“It is going to provide tax cuts and aids for individuals, families and businesses that were impacted by COVID-19,” Marquart said. “It’s going to help lead to that relief and recovery, and on top of that, make our families and communities and our economy stronger into the future.”

The tax bill passed the Minnesota House after 1 a.m. with many Republicans in opposition. Two hours later, the Senate cleared it by a 54-11 vote.

The last spending piece to fall in place was also the biggest. The state Senate passed an E-12 education funding measure Wednesday, ensuring that all government programs will continuing operating as the new fiscal year begins July 1. The bill provides a big boost in school funding, with a 2.45 percent increase in the general formula for the first year and another 2 percent increase in the second year. 

Lawmakers strike a deal

Sen. Roger Chamberlain, R-Lino Lakes, the chair of the Senate Education Committee, said it was the biggest increase in 15 years, without imposing new requirements on schools.

“What we have in front of you is a simple bill,” Chamberlain said. “Money, not mandates.”

The Senate passed the bill unanimously, and Walz signed it into law Wednesday night.

In a marathon session Tuesday night, lawmakers passed a public safety bill and funding measure for state government agencies. Public safety was an especially contentious effort, as House Democrats pushed for police accountability provisions and Senate Republicans resisted. 

Legislature debated Tuesday

“We need all the tools on the table. We need our accountable police officers at the table. We need our active community citizens at the table, and we need strong accountability system for everybody,” said Rep. Carlos Mariani, DFL-St. Paul, the chair of the House public safety committee.

The state government bill included an amendment to end the emergency powers Walz used to address the pandemic over the past 15 months. 

Gazelka said it was frustrating that the emergency lasted as long as it did.

“We never imagined as a legislative branch that the executive branch would keep emergency powers for a year and a half,” Gazelka said.

Asked about the termination of the emergency as he delivered the signed education bill to the secretary of state’s office, Walz expressed relief.

"I'm the happiest man in the state, I can tell you that,” the governor said. “I'm happy because COVID has now become a chronic management issue rather than an emergency. I'm happy about it because I think it takes some tension off."

The tax bill was changed at the last minute to add a new clause giving Walz extra latitude to handle coronavirus response in the absence of a declared emergency.

His agencies were given until Aug. 1 to pull back on steps they took during the pandemic. And health officials could keep testing and vaccination programs operating for longer by simply declaring a public health disaster.

House Majority Leader Ryan Winkler, DFL-Golden Valley, said it ends the emergency in an orderly way.

“We have to have a vaccine program. We have to have a testing program. We have to move workers back, state employees back to their agencies. We have to have flexibility in unemployment insurance. We have to make sure if there is a surge we are prepared for it in the future.”

House Republicans led by Minority Leader Kurt Daudt slammed it as backtracking on a vote to rescind the peacetime emergency. 

“We’re just putting conditions on last night’s end of the emergency powers. We’re giving the governor new emergency powers — public health disaster declaration,” Daudt said, noting language that allows agencies to sidetrack normal contracting requirements and gives contractors legal protections if something goes wrong.

Lt. Gov. Peggy Flanagan said the administration got a lot done during the time the state of emergency was in place.

“We are going to work in partnership with the Legislature through the end here, and if we need to come back together to ensure that there are things that are keeping Minnesotans safe, we’ll do that,” she said.

Flanagan was highlighting the passage of a finance bill for affordable housing programs. The bill also includes a wind-down of the state’s eviction moratorium.

Another big piece of the budget — the health and human services bill — includes an extension of the health insurance reinsurance program designed to stabilize individual market premiums.

The transportation bill increases funding for roads, bridges and transit. 

The jobs bill includes financial help to small businesses harmed by COVID-19.  

Even with a new budget in place, the long special session is not over. Gazelka said lawmakers plan to stick around a little longer for a potential bonding bill package of public construction projects — and for one more reason.

“We want to make sure the governor signs the bills,” Gazelka said.

MPR News reporter Brian Bakst contributed to this story. 

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Hours before a deadline to avoid a partial government shutdown, the Minnesota Legislature passed the final elements of a $52 billion two-year state budget. It capped a year of remote meetings and special sessions related to the COVID-19 pandemic that pushed the limits of divided state government. 

Long, strange trip: Legislature passes new budget

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