Takeaways from the 2026-27 Minnesota Governor’s Biennial Budget

What’s changing:
The state will reimburse a smaller share of special education transportation costs, reducing state aid to school districts.

Fiscal impact:

• Cuts state spending
• −$48.6 million in FY 2026–27
• −$54.9 million in FY 2028–29
• Ongoing annual reductions thereafter

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Why the Governor says this is needed

• Special education transportation costs are growing rapidly:
  • ~7.5% average annual growth since 2015
  • 10.3% growth in FY 2023
  • 17.7% growth in FY 2024
• A growing share of transportation is now contracted, which is more expensive than in-house service:
  • Contracted costs were 61% of total before 2016
  • Now ~78% of total costs
• The state argues the reimbursement formula needs to be adjusted to reflect this cost growth.

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What the proposal actually does (step by step)

1. Initial reimbursement rate is reduced

• FY 2026: initial aid calculation reimburses 95%
• FY 2027 and later: initial aid calculation reimburses 90%

⚠️ This is a reduction from current practice in how the formula calculates state aid.

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2. Cross-subsidy aid partially backfills the cut

• Minnesota’s cross-subsidy reduction aid continues to:
  • Cover 50% of unreimbursed special education costs
• As a result, the state argues districts are effectively still reimbursed ~95%, even though:
  • The direct transportation reimbursement drops
  • The remaining cost is partially offset elsewhere in the formula

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What this means in practice for districts

• Districts will:
  • Receive less direct state aid for transportation
  • Need to absorb or reallocate costs locally
• Impact varies by district:
  • Districts with higher special education transportation costs are hit harder
  • Districts relying heavily on contracted transportation see larger effects
• Districts must adjust budgets to account for lower reimbursement going forward.

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What this does NOT do

• Does not eliminate transportation as a required IEP service
• Does not change eligibility or student rights
• Does not eliminate cross-subsidy aid

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Bottom line

This is a real funding reduction, not just a technical change.

• The state reduces its share of special education transportation costs
• Savings to the state are significant (tens of millions per biennium)
• Districts are expected to manage rising transportation costs with less state reimbursement, even though special education transportation remains federally required