Amid a backlash from local officials across Minnesota, the Walz administration has begun to mend fences with counties that were asked to repay the state nearly $10 million for payment errors created by the state Department of Human Services (DHS).

Gov. Tim Walz recently told county leaders that he would work with the Legislature so that counties would not be on the hook for the payments, which came to light in a surprise DHS announcement in mid-November that asked counties to retroactively pay for chemical dependency treatment and some foster care placements.

Counties cried foul over the request, especially because they had already set their 2020 budgets and because they were being asked to shoulder the burden for mistakes made by DHS officials — some that stretched back several years.

Walz's announcement at the December convention of the Association of Minnesota Counties was met with a "rousing round of applause," according to the group's executive director.

"This was a recognition by the governor and DHS that they would work collaboratively with us rather than just send us bills and be on their way," said Julie Ring. "There was a lot of enthusiastic support for that commitment."

Still, the money would need to be authorized by the Legislature, and a key Republican leader in the Senate signaled that she is unwilling to use new money to plug the gap. "The counties can and should be held harmless," Sen. Michelle Benson, R-Ham Lake, said in a statement Friday. "DHS has plenty of money (from double-digit funding requests over the years) to cover their own billing mistakes."

The governor's communications director, Kayla Castaneda, said Walz will find "workable solutions" with the Legislature. "County governments are critical partners in providing human services to the people of Minnesota," Castaneda said.

Both Walz and Benson have also said that two Minnesota Indian bands should not be expected to repay $29 million in overpayments from the DHS for opioid addiction treatment. Legislative Auditor James Nobles said "troubling dysfunction" at DHS was responsible for the error, which started in 2014.

Both the Leech Lake Band of Ojibwe and the White Earth Nation said they had been relying on advice from DHS officials when they billed the state Medicaid program for the addiction services. They also faulted the DHS for a lack of communication once the overpayments were identified as a problem by the agency.

For the counties, the most expensive issue at hand is $9 million that the state asked them to pay for addiction treatment billed to the Medicaid program, which is funded with both state and federal money.

Treatment provided at a facility with more than 16 residential beds does not qualify for federal matching funds — a rule established by the federal government decades ago, primarily to discourage use of large institutions for the mentally ill.

But the DHS did tap federal funds for addiction treatment at such institutions when instead it should have been using state money and billing the counties for a small share of the costs. Unlike the issue with the Indian bands, there were no overpayments to providers.

In the case of the counties' addiction treatment costs, the DHS has been improperly billing the federal government for years, and first notified the Legislature about it in 2016. Since then, the problem continued, and the state now owes the federal government $70 million, with the counties being asked for pay for $9 million of the total.

St. Louis County was asked to pay nearly $700,000, the second highest amount in the state.

"St. Louis County is disproportionately impacted by this cost share due to the severity of substance use disorder needs in our county," said Linnea Mirsch, county public health and human services director. "We appreciate Governor Walz's comments ... and specifically the governor's commitment to hold counties harmless for billing errors."

A second issue affecting county bank accounts — and some tribes — stems from a change in federal law that requires fingerprint background checks for employees of foster-care providers in corporate settings such as group homes.

Until those homes comply with the federal background check requirement, counties can't tap into federal funds for placements they make at those facilities.

So far, more than $600,000 in federal payments to counties for care provided after July 1 won't be paid, and the tally keeps growing.

To speed up the process, DHS recently announced that it would pay for the costs of the background checks. "This action will expedite the background check process, which is important to ensuring children's safety," said DHS Commissioner Jodi Harpstead.

Several counties have said they appreciate the help, which could cost the state up to $250,000. Even so, a general shortage of agencies that can take and process the fingerprint checks could make it difficult to get all the background checks completed.

Until then, counties will still be required to place children in corporate foster care when necessary, leaving them without reimbursement until the facilities get their employees cleared for working with children.

Matt Freeman, director of the Minnesota Association of County Social Service Directors, said he hopes the governor and legislative leaders would include both the chemical dependency and foster care reimbursements in any budget authorization.

"DHS is working to be a strong partner with counties in our state-supervised, county-administered system," he said. "There have been bumps in the road in that process, but ultimately for us to serve our clients well at the county level we need that strong partnership."

Glenn Howatt • 612-673-7192