Budget includes additional responsible cuts, protects investments made last session

ST. PAUL, MN - Governor Tim Walz today released his revised budget for the next biennium. The revised budget includes just under $250 million in additional ongoing reductions in FY 28-29, paired with small, primarily one-time investments in critical work, including funding to respond to Avian Influenza and law enforcement training.

“This budget is fiscally responsible and prioritizes the programs that will set Minnesotans up for success for generations to come,” said Governor Walz. “By addressing the budget challenges we face today, we’re setting Minnesota up for long-term success and protecting the resources necessary to make Minnesota the best state to live, work, and raise a family.”

Investments in the revised budget will support the state’s response to Avian Influenza and provide additional funding for law enforcement training through the Philando Castile Memorial Training Fund. The budget leaves over $2 billion on the bottom line in FY 26-27 and incudes roughly $250 million in additional ongoing reductions in FY 28-29.

“The revised budget curtails spending growth while maintaining key services that improve Minnesotans’ lives,” said Minnesota Management and Budget Commissioner Erin Campbell. “This budget is fiscally responsible and recognizes the need to take action now to address the imbalance in revenues and spending long-term.”

The Governor’s revised budget includes the proposals in his original budget to curb growth in spending, lower the sales tax, combat fraud, and hold health insurers accountable for rising costs.

Responsible Cuts and Curbing Growth
The Governor’s budget includes responsible budget cuts and curbs unsustainable growth in spending in the programs that drive the structural deficit. The budget will limit year-over-year growth rates in Medicaid waivers without limiting eligibility for services, saving the state more than 1.3 billion dollars. The budget also cuts state funding to private schools and includes a 5% reduction in Special Education transportation reimbursement costs, saving?approximately $50 million in each of the next two-year budget cycles while incentivizing schools to?create efficiencies in transportation.

Lowering Taxes and Closing Loopholes
The Governor’s proposal cuts the statewide sales tax by .075%, which would be the first sales tax cut in state history. He also proposes closing loopholes by expanding the sales tax base to services provided to individuals by investors, bankers, and lawyers, making the tax system more fair and less regressive. Additionally, the budget proposes an investment in a new corporate franchise tax division unit to audit complex pass-through entities and close loopholes.

The budget also proposes an increase in the surcharge currently levied on health maintenance organizations from 0.6% to 1.25% of total premium revenue, to ensure large health care corporations pay their fair share.

Stopping Fraud
The Governor’s anti-fraud package turns the dial toward tighter controls and greater oversight by strengthening enforcement authority and creating tougher penalties. The proposals include adding nine staff members to the Attorney General’s Medicaid Fraud unit; giving agencies expanded authority to stop payments from going to people and entities suspected, charged, or convicted of fraud or financial crimes; and using artificial intelligence to detect and prevent fraud. The package also increases the criminal penalty for stealing public funds by 20%.

Making Health Insurers Pay Their Fair Share
The Governor’s revised budget includes his plan to hold health insurance providers accountable, save taxpayer dollars, and lower health insurance costs. The proposal would shift the responsibility for the state share of reinsurance to insurers rather than taxpayers. Governor Walz’s proposal comes as the Trump Administration pushes for $880 billion in cuts to federal Medicaid through 2034, which would shift costs to states and put millions of Americans, including thousands of Minnesotans, at risk of becoming uninsured.

In 2022, Governor Walz signed legislation to extend Minnesota’s reinsurance program - a program created to help stabilize high health insurance premiums in the individual insurance market. This session, the Governor’s proposal would shift the responsibility for the state share of reinsurance to insurers rather than taxpayers. Under this plan, insurance companies will be required to create a fund that covers high-cost procedures, like premature births or cancer treatments, for people on the individual market. The Governor’s plan also increases the surcharge currently levied on health maintenance organizations from 0.6% to 1.25% of total premium revenue, to ensure large health care corporations pay their fair share.

Details on the budget can be found here and on the Minnesota Management and Budget website .