Minnesota Department of Human Services Commissioner Jodi Harpstead said she welcomed the Legislature’s decision to break up the massive department. (Anthony Soufflé, Star Tribune/The Minnesota Star Tribune)

Minnesota's largest and most-scrutinized state agency will be split up in the coming years as the result of legislative action meant to reduce bureaucracy and costly errors.

The Department of Human Services' massive Direct Care and Treatment division will spin off into its own agency and take its roughly 5,000 employees with it. Additionally, a new Department of Children, Youth and Families created by the Legislature this year will take more employees away from DHS.

State lawmakers talked for years about breaking up the DHS, their discussions intensifying after the agency made a string of costly financial mistakes and received scathing reviews from the state's legislative auditor. Some felt that the agency, which has more than 7,000 employees and an annual budget that exceeds $20 billion, was too large to effectively manage.

"As we've talked about whether or not DHS it too big and should it be separated, I've come to realize that it would probably be an advantage to have a smaller agency," said DHS Commissioner Jodi Harpstead.

The DHS serves more than 1.5 million Minnesotans, including the state's most vulnerable populations, through a vast array of programs.

The creation of the new Department of Direct Care and Treatment takes effect Jan. 1, 2025, according to the human services funding bill passed by the Legislature in May.

Senate Human Services Committee chairman John Hoffman, DFL-Champlin, said he believes both the DHS and the new Department of Direct Care and Treatment will benefit from the separation by becoming more "nimble" and focused on their own operations.

"I think you're going to have a little bit more oversight because it just focuses on its primary responsibilities," Hoffman said. He carried the bill to separate the two entities.

Republican Sen. Jim Abeler, who also supported the separation, struck a more skeptical tone about whether the split will improve stewardship of taxpayer funds.

"It's the governor's influence on all his departments, and by virtue of the commissioners he chooses, that really decides the outcomes of any department," said Abeler, R-Anoka. "I think merely rearranging some of the duties may have a huge effect or it may be minimal. It's still all up to the administration to make it work."

The Direct Care and Treatment division currently within DHS operates a specialized behavioral health care system that includes psychiatric hospitals, substance abuse treatment facilities, group homes for people with disabilities and sex offender treatment facilities.

That system is comparable in size to the CentraCare health care system in greater Minnesota, according to Harpstead.

Once separated, Harpstead said the new Department of Direct Care and Treatment will look "much more like a hospital system with a CEO reporting to a board." Marshall Smith, the current CEO of the division, will stay on to lead the department.

Smith was not available for an interview.

The Department of Human Services and the Direct Care and Treatment agency will keep their respective employees, Harpstead said.

The cost of breaking up the two entities will mostly be covered by their existing budgets, said DHS spokesman Christopher Sprung. However, Sprung said the agency expects to spend an additional $4 million a year through 2027 to set up the Department of Direct Care and Treatment's board of directors and hire new HR, compliance, legal and communications employees.

About 2,500 employees will remain at DHS after it's separated from Direct Care and Treatment, Harpstead said.

But some of those remaining employees are expected to move over to the new Department of Children, Youth and Families. Exactly how many employees will transfer to that agency is still being discussed, but the "rough estimate is about 600," Sprung said.

That new department is expected to have as many as 1,100 employees in total, said Erin Bailey, an assistant commissioner at Minnesota Management and Budget. It will absorb DHS' children and family services division, which includes child care services and child support, as well as the agency's Office of Inspector General.

Looking forward, DHS will have a more manageable portfolio of programs that will include the state's Medicaid program, housing, and services for seniors and people with disabilities, Harpstead said.

That will make Minnesota's DHS more comparable to other states' human services agencies, she said, adding that many separate their services for children and direct care and treatment.

"If you think about it, after we also create the Children, Youth and Families agency, DHS will in many ways be the Medicaid agency," Harpstead said.