It’s an issue affecting everyone from schools to cities, counties and even state governments: When it comes to federal funding, nobody knows what the future looks like.
“It’s going to be really, really hard,” said state Rep. Luke Frederick, DFL-Mankato. “I mean, the money is just not going to be there.”
Frederick, who represents District 18B, points to the federal budget package passed July 4 as the reason much of those funds won’t be available. That includes big cuts to both the Supplemental Nutrition Assistance Program, or SNAP, and Medicaid. They’re cuts that will send shockwaves all the way down to the local level.
“The biggest thing right now that we really worry about (with) federal funds is what’s coming for SNAP benefits and for Medicaid,” Blue Earth County Deputy Administrator Josh Milow said.
Frederick said county governments are the ones that are going to be hit hardest with these cuts, but in St. Peter, City Administrator Todd Prafke is keeping his eyes on a local hospital.
“River’s Edge Hospital is owned by the city of St. Peter. … It’s a municipal hospital, it’s one of the very few that are left in the state of Minnesota,” Prafke said. “A significant portion of our customer base is funded through (Medicaid). Upwards of almost 15%, and so losing 15% of your revenue stream is not insignificant.”
The big problem, both for the county and River’s Edge, is they can’t just stop their programming.
“When you look at the programming that the county provides … the state and the federal government say, ‘You’re going to do the services on behalf of the state. You’re going to do these services on behalf of the federal government,’” Milow said. “We’re mandated to do that.”
That’s an issue Prafke sees impacting River’s Edge Hospital as well.
“If (River’s Edge is) no longer receiving those dollars, we’re still required by law to provide those services. So somebody shows up at the emergency room at 2 in the morning, we’ve still got to provide that service,” Prafke said. “How does that get paid for? Who’s paying for that? How does pricing have to change? How does house services have to change, because I can’t turn you away, right? I can’t turn you away at the emergency room so those are significant issues.”
All these problems are coming to a head as counties and cities are beginning to work on their tax levies for 2026. And when it comes to a decrease in external funding and an increase in expenses, there’s only two ways these bodies can cover those changes: an increase in taxes or a reduction in staff or other services.
“To raise revenue, really, the only way is property tax increases,” Milow said. “We’re already, for 2026, looking at probably a little over $1.3 million in reductions, for salary, benefits. We’re also looking at some significant decreases of capital purchases that we’ve taken out of the budget.”
Milow clarifies that, in Blue Earth County, when they look at reductions in staff that is going to only be done through attrition — not hiring replacements for those who retire or move on to another job — as opposed to firings or layoffs.
Right now, Milow said the county could be looking at reducing 11 full-time positions through this method over the next few years. He said that’s going to have impacts on the services the county provides.
“One of the places I look at right now is our library. We’ve already had less staff at our library than what we did a couple months ago and that is when we’re just looking at where we can get some savings. That’s a place where we have less staff and probably, I would say as a result, maybe a little less service,” Milow said.
As of the start of their work session on July 22, the Blue Earth County Board was looking at a tax levy increase of about 8.5%. That’s just for next year, before much of the cuts and changes are set to take place.
“I know it’s not great looking at 2026, but that’s not horrible,” Milow said at the work session, “But it is really looking at 2027 and 2028.”
In St. Peter, the city is still in the process of putting together its budget for next year, Prafke said, and it’s unclear what the tax levy change may be. That’s a piece they’ll know in the coming weeks, and one piece, he said, they’re going to have to try and manage is all of the questions still up in the air.
“It’s the order of magnitude, the volume of changes, that creates additional complexity in this,” Prafke said. “A clear understanding of a problem leads to a better solution. We still don’t have all that, and I don’t think most people have that all defined yet.”
As federal funding dries up, it’s not unusual for counties to turn to the state Legislature for help with various projects and expenses. That’s already been the case this year, with both Frederick and Sen. Nick Frentz, DFL-North Mankato, saying they’ve heard from counties across the area asking if there’s going to be state aid or if they’re left on their own to figure it out.
“It’s going to be a little bit of both,” Frentz said.
Frederick said much of the reason for that is the state is running out of funds as well.
“The counties, they’re hoping that the state can come in and offset some of the federal dollars … But they’re also quick to point out that, even at the state level, we have less money coming in,” he said.
Much like at the county and municipal level, how much less the state will be getting is still unclear. Frederick, who sat in on a briefing July 31 about the impacts the federal budget package will have, said that over the course of the next four years the state could see a decrease of more than $1 billion in federal funds.
“It could be significantly more than that, or it may not. We don’t know, but we do know that there’s going to be a significant decrease,” Frederick said.
There’s also going to be changes to Medicaid eligibility, which Frederick said the state will have to work to stay in compliance with. One of those changes he said really frustrates him is the reduction of the types of immigrants eligible for Medicaid.
According to a slide from the briefing, eligibility for immigrants will be limited to “lawful permanent residents, certain Cuban immigrants and Compact of Free Association (COFA) migrants” beginning Oct. 1. The slide mentions this will remove “refugees, humanitarian parolees, asylum grantees, certain abused spouses and children and victims of human trafficking.”
“I want to be very clear, these were legal immigrants that were in our country. … There’s no reason to remove those services other than to give massive tax cuts to millionaires and billionaires, and we’re doing that at the harm of other people,” Frederick said. “Taking away benefits from someone that is a refugee here, legally documented, just so that Congress can afford these tax cuts to billionaires, it is disgusting.”
Proponents of the federal budget package, such as Congressman Brad Finstad, a Republican from New Ulm who voted twice to approve the bill, point to some of the positives it does.
“This bill delivers meaningful and permanent tax relief for families and small businesses across the 1st District while also making government more accountable to taxpayers through much-needed checks on Washington’s waste, fraud, and abuse,” Finstad said in a press release after the bill passed. His office did not respond to requests for comments on this story.
However, to many at both the county and the state level, those perceived positives aren’t enough to outweigh the negatives.
“We’re like most people when they sit around their kitchen table and think about their budget and there’s a change in their income. Our first gut response is, ‘Where are we gonna get hurt? Let’s try and get that figured out and then we’ll worry about if there’s a positive of that,’” Prafke said. “That’s how people figure it out at their kitchen table. It’s not that dissimilar at a local unit of government size as well.”
And for lawmakers Frederick and Frentz, one big sticking point is that many of the changes aren’t set to take effect until 2027 or 2028, after the midterm election has taken place.
“If this reduction in funding is so great … then why are they delaying the implementation until after next year’s election?” Frederick said, recalling a point Frentz brought up at the recent briefing. “For me personally, I interpret that as cowardice, they’re hiding behind what they know is bad policy. They want to get past this next election cycle without it hurting them too much.”