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08.26.25
Inside the Minnesota Legislature: What Businesses Need to Know from the 2025 Session
By Cale Dunwoody, Vice President of Public Policy, The Chamber
Panel of regional legislators and Chamber Vice President of Public Policy, Cale Dunwoody, at the Minnesota Legislative Wrap-Up event discussing outcomes of the Minnesota 2025 Session.
Minnesota’s 2025 legislative session is in the books. But this one didn’t follow the usual playbook.
A tied House, special elections and power-sharing agreements made for an unpredictable few months in St. Paul. Still, lawmakers passed a $66 billion state budget and debated major issues, from business mandates and permitting to housing, taxes and workforce.
The Chamber convened four regional legislators at the recent Minnesota Legislative Wrap-Up event to break it down: Sen. Mark Johnson, Sen. Rob Kupec, Rep. Steve Gander and Rep. Jim Joy.
Here’s what passed, what stalled and what it all means for your business and community.
Budget Snapshot: A Balancing Act
Lawmakers approved a $66 billion budget for the next biennium, which is an 8% decrease from the previous cycle. While key services were preserved, the reduction comes amid projections of a $6 billion shortfall in the 2028–2029 fiscal years.
Why it matters:
- Budget discussions reduced state spending while avoiding major cost shifts to local governments and increasing taxes on businesses and individuals.
- Maintaining state services or programs may become more difficult if budget deficits persist.
What you can do:
- Monitor state and local-level funding changes that may affect your operations.
Paid Leave and Employer Mandates: Prepare for 2026
Minnesota’s Paid Family and Medical Leave (PFML) program is set to launch in January 2026, but many raise concerns about implementation, administrative burdens and the cost to run the program. Minnesota’s Earned Sick and Safe Time (ESST) mandate continues to create compliance requirements for employers, adding another layer of complexity to workplace management.
Key points:
- No meaningful reforms passed this session.
- PFML’s maximum payroll cap was reduced from 1.2% to 1.1% (the current rate is 0.88%). and will be funded by a payroll tax split between employers and employees (cap lowered to 1.1%).
- Local governments and unions are already renegotiating contracts.
- Lawmakers expect adjustments after the PFML Jan. 1, 2026 launch.
- Moderate adjustments made to ESST program.
What you can do:
- Build PFML costs into your 2026 budget.
- Update HR policies updated for ESST.
- Track DEED guidance and compliance resources.
- Share workforce impact feedback with The Chamber and state legislators.
- Attend The Chamber's Employment Engagement Session on Sept. 15 to learn more and ask questions.
Business Climate: Taxes, Incentives and What Stalled
Tax debates ranged from a fifth income tax tier to sales tax changes, social media taxes and local aid reductions. The final package included both cuts and expansions.
Notably, lawmakers increased the cannabis tax, expanded the Research and Development (R&D) credit and approved new sales tax remittance requirements for businesses with large tax liabilities beginning in 2027.
Key updates:
- Expanded Research and Development (R&D) tax credit
- New sales tax remittance rules for high-liability vendors (effective 2027)
- Cannabis tax rate increased to 15%
- Border Cities Enterprise Zone program expansion stalled but remains a 2026 priority
- Moorhead’s Downtown Tax Increment Financing District extended
What you can do:
- Review how these changes affect your business or industry here.
- Track guidance on sales tax remittance if you meet the threshold.
- Engage with partners like the Fargo Moorhead West Fargo Chamber of Commerce on cross-border competitiveness
Permitting, Infrastructure and Bonding
Minnesota passed a $700 million bonding bill to fund public infrastructure needs and passed a separate bill aimed at streamlining environmental permitting.
Why this matters:
- Local infrastructure projects such as water and wastewater treatment projects, flood protection, local and state facilities, and roads depend on bonding funds.
- Permitting reforms may help speed up economic development, though further changes may be needed.
- Moorhead and Clay County still seek $60 million for FM Area Diversion flood mitigation; the state included $9 million in statewide flood funding this session, which could help.
How to engage:
- Monitor infrastructure discussions tied to your sector.
- Support permitting improvements that enable responsible growth.
Workforce and Housing: Core Issues, Complex Fixes
Child care, housing and workforce shortages remained central topics. Lawmakers also passed a jobs and labor budget bill with workforce investments and policy updates.
In housing:
- Statewide zoning standards were discussed but delayed over local control concerns.
- Communities adopting zoning/housing incentives will qualify for new support.
In workforce and child care:
- Overregulation remains a barrier to child care access.
- Bipartisan support continues for early education and workforce investments.
How businesses can help:
- Collaborate with local workforce, housing and child care initiatives.
- Share hiring and retention insights with policymakers.
- Leverage state programs and grants where possible.
What’s Next for Minnesota and The Chamber?
The session built a foundation for bipartisanship, but big questions remain around business mandates, critical infrastructure needs, regulatory and tax competitiveness, and workforce shortages.
The Chamber is committed to advancing policies that support business growth, protect competitiveness and strengthen our regional economy.
Next-phase priorities for The Chamber:
- Preparing for PFML implementation
- Revisiting policies to incentivize housing development
- Reform existing burdensome business mandates
- Continue to analyze permitting processes to spur additional economic development
- Securing funding for regional flood mitigation and regional infrastructure projects
- Continuing advocacy for policies and programs that expand border city competitiveness
- Support additional tax reforms to foster regional growth and prosperity
The Chamber will keep working alongside elected leaders to advance practical, pro-business solutions for our community.
Take the Next Step: Minnesota Paid Leave Employer Engagement
You’ve read about Minnesota Paid Leave and how it will impact your workforce starting Jan. 1, 2026. Now it’s time to prepare. Attend The Chamber's local employer engagement session to get a detailed overview of the program, hear recent updates, ask questions and learn how to meet your responsibilities.
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