State policy cuts Highway 61 project costs for Two Harbors

Senator Grant Hauschild announced that state changes to MnDOT’s Cost Participation Policy will cut local obligations on the Highway 61 Two Harbors corridor by $1,538,500: Two Harbors’ share falls from a projected $4,130,000 to $3,321,500, a savings of $808,500, and Lake County’s obligation drops from $870,000 to $140,000, a savings of $730,000.

The fiscal shift flows from legislative direction in the 2025 transportation bill and MnDOT’s February 2026 update to its Cost Participation Policy, which adds an ability-to-pay cap limiting a local unit’s responsibility for trunk-highway-eligible costs to no more than 0.8 percent of a community’s five-year average Adjusted Net Tax Capacity. MnDOT’s report and committee slides call the change the most significant revision since the policy began in 1985 and estimate the ability-to-pay clause alone will roughly halve prior local contributions for MnDOT-initiated projects.

The change directly reduces the immediate budgetary burden on Two Harbors and Lake County: the lower local shares shrink anticipated borrowing or direct appropriations tied to trunk-highway-eligible elements, and Senator Hauschild framed the offset as easing pressure on property taxpayers while freeing municipal resources for other priorities. League of Minnesota Cities materials and stakeholder workgroups, including the Minnesota County Engineers Association, supported the update as one that reduces disproportionate city and county burdens.

The funding offset does not, however, erase remaining costs or alter the project schedule. Under the new numbers Two Harbors still faces a $3,321,500 local obligation and Lake County still faces $140,000. MnDOT’s Two Harbors project page shows the corridor is in final design with utility work slated for 2026 and major construction programmed for 2027 and 2028, with some finishing and landscaping phases extending into 2029. The policy change applies to projects beginning in state fiscal year 2027, effective July 1, 2026.

Visible construction impacts remain likely: MnDOT’s corridor plan lists roundabouts at 7th Avenue and 11th Street, protected pedestrian refuges and sidewalks, a separated multi-use trail into town, and intersection improvements while retaining traffic signals at key junctions. Local outreach records show public meetings and business updates in 2025 where MnDOT staff, Two Harbors Mayor Lew Conner, City Administrator Patty Nordean, and Lake County Chamber president Janelle Jones discussed detours and business access, underscoring ongoing concerns about short-term disruptions even with reduced local cost shares.

Policy follow-ups are already in play: Hauschild introduced SF5012 on April 9, 2026 to appropriate construction mitigation grants for Two Harbors businesses, and that bill was referred to committee. MnDOT’s report was addressed to legislative transportation leaders including Representative Jon Koznick and Senator Scott Dibble, and MnDOT District 1 will continue final design and staging coordination. The $1.54 million in local savings is a clear budgetary win, but significant construction, local cost exposure, and business disruption planning will continue through the 2026 utility work and the 2027-2028 construction seasons.