Ramstad: The next year is going to be tough for Minnesota governments and politics

Near the end of a Minneapolis mayoral candidate forum at the Minnehaha Communion Lutheran Church a couple of weeks ago, the moderator enlivened things by setting up a hypothetical scenario and asking for a lightning response.

A fiscal crisis has hit the city, and candidates can choose one priority to solve it: Raise taxes or cut spending.

Though top-runners Jacob Frey and Omar Fateh weren’t there, every candidate present said their priority would be to cut spending.

That surprised me, because politics in Minneapolis is generally a battle between liberals and extreme liberals, all quite willing to spend money and raise taxes.

But really, I was encouraged. Even people with a proclivity to believe government is the answer to any question realize that Minnesotans, most especially in Minneapolis, are at the end of the rope when it comes to taxes. We’ve had enough. They’re too high, and they keep going up.

It’s not just taxes, of course. Housing costs, particularly for property insurance, have risen sharply this year. And this month, people across the country are seeing large increases in health insurance costs for 2026, even aside from the expiring tax credits Democrats and Republicans are fighting about in Congress. Inflation is also on the rise again.

All of which has me thinking less about Tuesday’s election and more about the one a year from now. David Schultz, political scientist at Hamline University, over a recent lunch got me revved up about elections in presidential midterms.

Here are the forces, from the macroeconomy to the micro-Minnesota-only, that I think hold the potential to collide by the 2026 election.

A century of cheap labor ended in the early 2020s, just when 15 years of very cheap capital did.

Donald Trump got himself re-elected last year by promising to tackle the inflation that plagued two years of Joe Biden’s presidency. Instead, stunningly, Trump raised import taxes and prices on Americans with an erratic trade policy while he also constrained the labor force with a crackdown on immigration so extreme that the country may actually lose people this year.

That slowed the nation’s economic growth, raised unemployment and pushed inflation back up around 3%, after it had ticked to near the 2% target of the Federal Reserve.

It’s a safe bet affordability will remain top of mind for voters next year.

Some believe the surge in investment on artificial intelligence, which has buoyed the stock market, will yield greater productivity, which in turn would boost economic growth. That’s wishful thinking in the near term. Economic stagnation is a greater possibility before the 2026 election.

The federal government’s cuts to state and local governments, as I wrote a couple of weeks ago, are only starting to be understood. Same with the tax effects of the One Big Beautiful Bill, which give a bigger break to businesses on their research and created deductions for individuals on tip and overtime income and on interest paid on car loans.

Conforming with the federal tax changes will result in a revenue shortfall of more than $1 billion for the state of Minnesota during its current fiscal biennium. Fortunately, the state brought in about that much in unexpected extra revenue during the biennium that closed in June.

Even so, other cuts made by Congress and the Trump administration mean hard choices are ahead for Minnesota legislators next spring. And their decisions will ripple through to county, city and school leadership.

Voters will have to decide next fall whether the federal government cuts took too big a toll on Minnesota. And they will be weighing that against the higher spending they are encountering personally. I doubt they will tolerate higher taxes.

Policymakers in St. Paul have begun weighing new auditing of state agencies. But the real difficulty lies within the structure of the agencies themselves, specifically a complex job classification system that diffuses accountability and is hard for leaders to change.

The same thing can be said in Minnesota’s schools, but only to a point. Teachers apply an entrepreneur’s creativity when they encounter hurdles to doing what they need to do in the classroom.

The school challenge is not confined simply to declining test scores. Segregation by race remains an acute problem in Minnesota schools. It harms student performance and has undermined Minnesota’s pioneering role in the charter school movement.

Meanwhile, the state takeover of family and medical leave benefits is not yet fully appreciated by Minnesota workers. If poorly executed, it will become an issue in the races for governor and legislative seats.

The constraints now taking shape because of the slowing economy and federal cuts will make the 2026 election very different from the 2022 and 2018 midterms, when activism and big ideas dominated in Minnesota.

I’ll be excited by candidates with creative, efficient ideas who recognize that 2026 is the moment to say: “We can no longer do everything we used to do, and that’s OK. We’re going to do this instead.”