Reading the Fine Print: What Governor Walz’s Budget Could Mean for Schools
By Madie Spartz
It may have gotten lost in the seemingly endless news cycle about the Minnesota Legislature, but an important part of the policymaking process happened earlier in January: the Governor released his biennial budget recommendations. It’s an odd year, which means the Legislature is obligated to pass a statewide budget, and the Governor has shared his priorities and suggestions for how the legislature should go about that.
This year’s projected budget surplus is just $616 million for the entire state government (last biennium saw $2 billion in education spending alone!), and the forecast for future years estimates that the cost of existing programs and services will begin to outpace revenue. Given that lawmakers have very little new funding to work with, what does this mean for education? There are still months to go before any final decisions are made, but the Governor’s education budget offers a glimpse into his priorities and things legislators are sure to debate. Here, we highlight a few of the most notable changes for E-12 education:
Literacy Incentive Aid Formula Change
Literacy incentive aid, which provides schools with dollars earmarked for literacy instruction, is currently based on MCA scores—the state’s only funding stream tied to testing. In its current form, literacy incentive aid offers less money to schools with more struggling readers. This funding could have a much greater impact by providing more resources to schools with higher concentrations of struggling readers. The Governor’s proposal would de-link funding from MCA scores; instead, it would calculate literacy incentive aid allocations based on districts’ poverty levels.
The Governor’s rationale for this proposed change is that Minnesota’s “most underserved and underperforming schools need additional supports” to implement legislative requirements around the READ Act and, ultimately, improve student achievement. It’s worth noting that this change wouldn’t add or subtract from current spending thresholds, but rather change how the existing funding is distributed.
Eliminate Alternative Teacher Compensation Revenue
The alternative teacher professional pay program, commonly referred to as “Q Comp,” is a form of incentive pay for teachers that school districts and charters may opt into. Under the law, rather than following a prescriptive set of criteria, districts and teachers’ unions work together to design a plan that addresses four components: career advancement options, professional development, teacher evaluation, and performance pay. There is wide latitude for districts to designate how Q Comp is used and distributed—and as such, varying views on the impact of the program. Currently, 111 districts and 71 charter schools participate.
The Governor’s proposal would phase out Q Comp by 2027, eliminating $250 million in spending over four years. The Governor’s rationale for eliminating this program is that beginning in 2014, the Legislature required all schools to develop a teacher development and evaluation program, so there are “two active and duplicative policies” aimed at development and evaluation for teachers. Nonetheless, the cut would have an impact on local programs and educator incentives.
Compensatory Revenue Modification
Compensatory revenue is a funding stream designed to help schools educate students who are not performing at grade level. Compensatory revenue is calculated via two factors: the number of low-income students in a given district, and the concentration of low-income students at particular schools within that district. Historically, the state determined students’ income status via free-and-reduced-price lunch forms, which families needed to fill out each year. However, the passage of Universal School Meals in 2023 complicated this process; since all students can now receive breakfast and lunch at school free of charge, there is much lower incentive for families to fill out these forms. As a result, the state began using a different mechanism for counting students in poverty called direct certification, where schools use families’ eligibility for other income-based programs to make the necessary counts for compensatory revenue.
The Governor’s proposal highlights challenges as districts transition away from meal forms as a primary way to determine this funding stream. His proposed solution is to extend a “hold harmless provision,” meaning schools will receive compensatory funding at similar levels to prior years, regardless of current poverty levels within the school, until the new system is fully implemented. According to the proposal, this would allow for consistency for school districts as MDE “evaluates trends and changes in pupil counts under the new data points.”
This aspect of school finance, like many in Minnesota, is highly complex, but it sheds light on the problematic system of schools receiving funds based on a paper form that many families don’t fill out. This in turn impacts a school’s ability to provide services to students who need them the most.
Early Learning Scholarships
One area in the Governor’s budget that does not show up as a change, and yet leads to a loss of resources, is early learning scholarships. This is a statewide program that provides funding for high-quality early learning programs, prioritizing children aged birth-4 from low-income families, in foster care, experiencing homelessness, or facing other barriers to early education. In 2023, the two-year budget invested heavily in this area, increasing ongoing scholarship funding from $70M to $100M but also making a major infusion of one-time funding—an additional $100M per year for FY24 and 25—that has been transformative for families. Now, as one-time funding that was appropriated in 2023 is set to expire, the program faces a cliff, dropping from $200M in spending for the last two years to $100M going forward.
This program already has an extensive wait list and it’s safe to assume that a reduction in funding will result in more families being placed on that wait list. It’s widely accepted in education research that the early learning period is critical for long-term academic success, and programs aimed at traditionally underserved children are vital in Minnesota’s pursuit of both educational and economic equity.
(Note that the distribution of early learning scholarships is being transferred to the new Department of Children, Youth, and Families on July 1, 2025, but has historically been administered by the Department of Education.)
Other Proposed Cuts: Special Education Transportation and More
Of the 22 proposed changes in the Governor’s budget, many involve cuts aimed at heading off a deficit on the horizon. Perhaps the most notable proposed cut is the special education transportation reimbursement, where the Governor proposes reducing state aid by 10%. This would leave school districts to come up with the difference, though the proposal states that “due to interactions” with other state aid, the effective cut would be more like 5%. Still, that would present a meaningful strain on many districts and families, especially considering the rapid increase in students being referred to special education services. The rationale for this change includes the fact that special education transportation costs have increased at an average rate of 7.5% annually, with a big jump of 17.7% in 2024. The proposal attributes this to a larger share of special ed transportation coming through outside contractors, which tend to be more expensive than in-house services.
The Governor also proposes to eliminate some state aid to nonpublic schools. Currently in Minnesota, the state provides some funding to public school districts to extend specific services to students living in their districts who attend private schools. This includes nonpublic pupil aid, which covers counseling services and educational materials like textbooks and standardized tests, as well as nonpublic transportation aid, which covers general school transportation and things like transporting special education students to any off-site location where they receive services. The Governor proposes eliminating both funding streams, which “would eliminate the state and school district obligations to pay for these materials and services to nonpublic schools.”
Looking Ahead
There’s no guarantee that any of these proposals will make it into the final education budget, but they do provide insight into what legislators will discuss over the next several months. Due to the relatively small surplus and possible impending deficit, lawmakers will need to make difficult decisions on what to prioritize and, possibly, what to cut. EdAllies will always advocate for Minnesota’s highest-need students to be prioritized in budget decisions. We will continue to monitor the debate as it unfolds and keep you updated along the way.