DEED outlines financial stress at Vocational Rehabilitation Services; lawmakers press for answers

Deputy Commissioner Evan Rowe of the Department of Employment and Economic Development told the House Workforce, Labor, Economic Development and Finance Committee on March 27 that Vocational Rehabilitation Services is facing “significant cost pressures” driven by flat federal grants, declining re‑allotment funds, rising service costs and increased demand.

“VRS is a program that assists Minnesotans with disabilities to prepare for, find, and keep a job,” Rowe said in a prepared overview. He described the program as a federal–state partnership, funded about 80% by the U.S. Department of Education with a required state match. Rowe said the program received re‑allotment funding in 2022 and 2024 — one‑time funds made available when other states underspend — but that re‑allotment looks unlikely for federal fiscal years 2025–26 and that represents “about a $5.4 million hit” to expected resources.

Rowe told the committee that applications to VRS have risen roughly 50% annually since 2020, and the average cost per participant and the complexity of client needs have grown. To manage the budget outlook, DEED has imposed a hiring freeze, offered early‑retirement and voluntary incentives, tightened controls on external contracts, and increased staff provision of direct services where possible.

Committee members pressed DEED on timing and decision‑making. Rep. [first name not specified in transcript] Baekeberg asked when the agency became aware of the shortfall; Rowe said DEED saw "initial signs in the summer of 2024" and took incremental steps, with more urgent actions taken after updated financial projections in the fall. Rep. Matt Frazier (state representative) framed the situation as one of federal uncertainty and asked how DEED was accounting for federal changes. Rowe said the agency was monitoring federal developments and coordinating with federal partners.

Lawmakers and VRS staff described immediate personnel and service impacts. Several VRS counselors and union representatives said staff are taking early retirement or leaving and some positions will receive permanent layoff letters. Chandra Peterson, a career counselor who serves deaf clients, said that more than 30 staff had already left through retirement, voluntary layoffs or position eliminations and that permanent layoff notices were pending. She said counselors’ caseloads can range from roughly 55 to more than 100 clients depending on the population served.

Representative Hicks introduced a bill intended to “plug the hole” in VRS funding and urged members to seek budget resources to avoid cuts. Several VRS counselors and union members testified in support of additional funding, describing the program’s role in helping Minnesotans with disabilities reach independent employment and citing state fiscal savings when people move off Social Security benefits. Renata Schultz, a vocational rehabilitation counselor, said that from 2021 to 2023 Minnesota earned about $61 million in federal savings when people left Social Security benefits after returning to work.

Committee members repeatedly requested more detailed, timely figures from DEED. When asked for a projected deficit number, Rowe said figures had been refined and that the department would follow up; earlier internal estimates provided to some members put the shortfall around $10 million per year (roughly $20 million across several years), and the governor’s revised budget proposed about $5 million in additional state match per year as partial relief.

The committee did not take a final vote on VRS funding but heard multiple requests from lawmakers for follow‑up fiscal detail, and for DEED to work with stakeholders on options to preserve services. Chair Baker asked staff to circulate the IPS and other DEED reports to committee members to inform upcoming budget deliberations.