Minnesota legislative negotiators struck an education spending deal Friday that would tie future school funding increases to the rate of inflation, help cover the rising cost of special education services and address districts' concerns about the cost of a new mandate.

Democrats' education budget agreement includes a 4% funding increase for schools in fiscal year 2024, a 2% increase in 2025 and annual inflationary boosts capped at 3% afterward. Their bill also includes more than $300 million per year to help cover schools' special education costs, and more than $60 million a year to fund a new mandate requiring districts to pay unemployment insurance to hourly school-year workers between academic terms.

"It's the biggest historic investment in education above base that we've ever done," said House Education Finance Committee chair Cheryl Youakim, DFL-Hopkins.

All told, Democrats' education bill would increase school funding by $2.2 billion over the next two years.

The money to fund the unemployment insurance change was a last-minute addition that wasn't included in either chamber's original education budget bill. It was added after administrators from some of the state's largest school districts raised concerns about the previously unfunded mandate taking away from their overall funding increase.

Mark Stotts, director of finance and operations for the Rosemount-Apple Valley-Eagan school district, told the Star Tribune earlier this week that the unemployment insurance change could have cost his district up to $5.8 million annually.

Scott Croonquist, executive director of the Association of Metropolitan School Districts, said Friday that he was relieved to see the state pick up the cost of the unemployment insurance expansion.

"We feel better, certainly," Croonquist said. "We are still worried, though, whether or not there are going to be enough incentives for people to want to work summer school … Are we going to be able to hire the staff we need?"

Youakim said hourly school-year workers should never have been excluded from unemployment insurance eligibility, calling it a "fairness issue."

"We still don't understand why these folks, even if you want to consider them seasonal, are one of the only ones carved out of unemployment," she said.

Some school districts have similar concerns about the cost of a proposed new state paid family and medical leave program, which would impose a 0.7% payroll tax on employers and employees.

Stotts said the payroll tax for that program could cost Rosemount-Apple Valley-Eagan — the state's third largest school district — $1 million a year if the district splits the cost with employees.

John Morstad, executive director of finance and operations for Osseo Area Schools, estimated the paid family and medical leave program could cost his district $3 million-plus annually. For comparison, Morstad said the 4% funding increase that state schools are poised to get in 2024 would amount to $8 million-$9 million more for Osseo Schools.

"I'm concerned about the fact that there are a whole lot of new mandates that basically wipe that out," Morstad said earlier this week, before legislators opted to fund the unemployment insurance expansion.

State Sen. Zach Duckworth, R-Lakeville, criticized Democrats for imposing new mandates that he said school districts didn't ask for.

"What they asked us for was a modest increase to the funding formula, an increase to the funding that we're willing to provide for the special education ... and then little to no other additional mandates," Duckworth said.

House Speaker Melissa Hortman, DFL-Brooklyn Park, said the funding increase Democrats are offering school districts will far outweigh any cost associated with new state mandates.

"The things that we are looking at are not going to have as dramatic an impact as the substantial increase in funding that we are allocating to education," she said.

The special education funding included in Democrats' bill could free up tens of millions of dollars for large school districts. State school districts are expected to collectively face an $811 million shortfall for their special education services this year, with costs far surpassing revenue, according to the Department of Education.

Districts are required by law to maintain special education services, but the government has long offered only a fraction of the money necessary to provide those services. As a result, districts have used money from their general funds to cover the difference, squeezing their overall finances.

Under the DFL's education funding agreement, Minnesota would commit to covering roughly half of that steep statewide shortfall. The state aid would greatly reduce each school district's special education deficit.

The bill also allocates more than $40 million per year in 2024 and 2025 toward a similar, though much smaller, deficit for English language learner services.

"We're optimistic that this could be an unprecedented year for funding Minnesota schools," said Tom Sager, executive chief of financial services for St. Paul Public Schools, whose $42 million special education shortfall would be nearly cut in half.

Staff writer Jessie Van Berkel contributed to this report.