Walz, DFL legislators at odds over eliminating Minnesota’s special education cross-subsidy

Gov. Tim Walz and Democratic lawmakers are currently at odds over how much state funding school districts should receive for special education, with the DFL governor initially proposing half of what legislators are hoping for.

Minnesota districts are required to provide special education services for students, but they don’t receive enough state or federal funding to pay for it. Schools are pressed to use their general funds for special education, which often causes districts to cut programs or ask local homeowners for higher property taxes. Lawmakers call this funding gap the special education “cross-subsidy.” Every Minnesota school district has a cross-subsidy they need to fund, which is projected to cost districts collectively over $750 million next fiscal year, according a House fiscal note.

DFL lawmakers are proposing $1.65 billion for the next two years and $1.9 billion in the following biennium to eliminate funding shortfalls for school districts. 

Walz, a former public school teacher, has proposed far less — $730 million for the next biennium and $840 million in the following. 

He said last month that the difference was a result of “some differences and some trade offs” to create a balanced budget, which is required by law. 

Walz and DFL lawmakers have remained on the same page during a rapid-fire legislative assault since the session began a month ago, including quick agreement on issues like abortion and an early tax bill. But the wide gulf between the DFL lawmakers and Walz’s special education proposals could portend more disagreements once the governor and Legislature need to iron out a two-year budget that will top $60 billion. 

Walz also said last month that his other education and tax proposals — like tying the school funding formula to inflation and paid family leave — will help the districts and families who would benefit from cross-subsidy elimination. Walz said he is open to discussions about increasing his proposal.

But his 50% cross-subsidy budget proposal also diverges from what he advocated for on the campaign trail last year.

During the final gubernatorial debate, Walz said Minnesota can “fully fund education” — one of his common monikers — by closing the special education cross-subsidy.

“If the state of Minnesota is able to close that cross-subsidy — ideally it would be the federal government — that allows schools to make their own decisions on what they need to do,” Walz said.

Rep. Dan Wolgamott, DFL-St. Cloud, is the chief author of the House’s bill to eliminate the special education cross-subsidy — the third time he has proposed more funding. The state currently pays for 6.43% of each school district’s special education cross-subsidy, and Walgamott’s bill would increase the state’s share to 100% beginning in fiscal year 2024. 

Even though Walz’s initial proposal is 50% of the funding needed to close the cross-subsidy, Wolgamott said the governor is open to negotiating. He said once the February budget forecast is released later this month, they’ll have a better idea how much education funding is available and can negotiate in earnest.

Increasing the state funding from 6% to 50% is “huge,” Wolgamott said, but he will continue to advocate for fully eliminating the cross-subsidy.

“I’m going to push ‘til the bitter end for 100%. That I think is the right thing to do morally and it’s the right thing to do because the schools need it,” Wolgamott said.

In Shakopee Public Schools, the district hasn’t been able to provide all the necessary mental health services for its students because of the special education cross-subsidy, according to testimony from Kristi Peterson, Shakopee Public School’s board chair. The district’s cross-subsidy this school year is an estimated $9.5 million, Peterson said. 

Lawmakers last session proposed funding to address the special education cross-subsidy — but not to eliminate it — but the DFL-controlled House and GOP-controlled Senate were unable to come to a final agreement.

Republican lawmakers this session have expressed concern about the large dollar amount associated with the bill and have shown support for appealing to the federal government to uphold its funding obligations before allocating lump sums from the state.