State and federal budget cuts will likely hit Minnesota homeowners’ tax bills

Minnesotans shouldn’t be too surprised when the budget cuts being made at the capitols in St. Paul and Washington, D.C., result in increases on their property tax bills.

County and city leaders face an uncertain long-term budget outlook and will soon need to make tough choices about how much to raise taxes or what services to cut. Property taxes are the only way local governments can raise revenue without the backing of the Legislature.

“We’ve got a budget storm coming,” said Hennepin County Commissioner Jeffrey Lunde, who noted that crafting next year’s budget will be challenging and program cuts may be needed. “I feel like this is going to be an ugly budget season.”

Lobbyists for cities and counties were able to fend off or delay the most severe funding cuts considered by Minnesota lawmakers, who wrapped up the next two-year budget on Tuesday. But there were still changes to social services programs and the elimination of local cannabis tax revenue that leave local governments with less state money than they expected.

Minnesota lawmakers say the changes were needed to balance the state budget they just passed and to help address a looming $6 billion deficit in 2028.

“Counties really had to be on defense. They were trying to find money wherever they could,” said Ramsey County Commissioner Mary Jo McGuire, who chairs the board’s Legislative Committee. “We were already struggling with our budget. We needed help from the state, not a cut.”

McGuire added that counties can’t lean too heavily on property tax increases to balance their budgets. Doing so hurts seniors and low-income residents.

“We don’t want to tax people out of their homes,” she said.

Further complicating the picture are budget talks in Congress that could mean big changes to how much federal money Minnesota governments receive. State lawmakers could be back in the fall to sort out any impact the next federal budget may have on the tax and spending plan they just passed.

Property taxes are the primary source of revenue for cities and counties. Tax proposals for 2026 are due by the end of summer, so local leaders will spend the next two months sweating the details.

Residents had sticker-shock last year, when some levy increases topped double digits because of inflation and growing employee costs. Now local officials need to figure out how to replace lost state revenue while planning for uncertain federal spending.

A big focus is social service programs — from food stamps and welfare to Medicaid services — which are funded with state and federal money but administered by county governments.

Lawmakers want to slow the growth of those programs and streamline how they are administered. They’re also considering having local governments absorb some of Medicaid programs’ costs.

The Minnesota Association of County Social Service Administrators identified about $50 million in cuts and cost shifts for social services programs in the budget that was just approved in St. Paul with more to come in 2028.

“I think there are going to be some really hard choices for folks at the local level,” said Matt Freeman, the group’s director.

Counties already struggle to administer those programs because of staffing shortages, antiquated computer systems and other challenges. Fewer resources will just make it harder to deal with the growing demand for aid programs.

“We are the state’s hands and feet when it comes to delivering those services,” said Dakota County Commissioner Laurie Halverson, who noted that some metro counties have frozen hiring because of budget concerns. “We are really digging in the couch cushions right now. We realize a significant levy increase won’t be good for folks.”

The budget cuts and cost shifts made in St. Paul are minimal compared to what could be coming from Congress. Billions in funding and grants to states are all in play, and the specifics won’t be known until fall, as Congress works to approve tax and spending plans.

New federal rules and work requirements for programs like food stamps and Medicaid may need to be implemented fast and could mean local governments need to add staff to deal with the paperwork.

“There are cost shifts that will trickle down to counties,” Matt Hilgart, of the Association of Minnesota Counties, said of the new state budget and the ongoing debates in Washington. “We are not out of the clear, yet.”