Minnesota’s budget outlook for the current two-year budget cycle has improved considerably, even as longer-term projections still show a shortfall to come.
The projected budget surplus for 2026 and 2027 is now $3.7 billion, which is $1.3 billion higher than November estimates, thanks to higher revenues coming in from some of the state’s more “volatile” sources, according to the Minnesota Management and Budget office. For lawmakers, that’s the good news.
And the bad? Forecasts still show spending growth outpacing revenue growth by fiscal year 2029, leading to a “significant structural imbalance,” according to MMB. The projected general fund balance for the 2028-2029 biennium is now $377 million. Previous estimates had foreseen a shortfall of as much as $6 billion by then, but that worrisome number has shrunk due to spending cuts and new revenue forecasts. It’s still not looking rosy in the eyes of state lawmakers.
Then there’s the question of shifting policies at the federal level — including what Gov. Tim Walz has described as punitive measures — as well as “missing or incomplete data due to recent federal government shutdowns” which “introduce significant uncertainty to the projections,” according to MMB.
On Wednesday, Vice President JD Vance announced that the Trump administration would “temporarily halt” nearly $260 million in Medicaid funding to the state of Minnesota over fraud concerns — an announcement that came even as the Walz administration and lawmakers rolled out new anti-fraud measures this week.
Medicaid is a healthcare safety net for low-income residents and helps pay for a wide range of services, from routine and emergency medical care to nursing home care and housing services. State officials have said they believe the intent of the federal government is to “defer payment” until a review of 14 high-risk Medicaid programs is complete, but that process could go on for months.
Rising health care costs, slower growth
Rising health care costs and slow economic growth have become budget albatrosses, with the Department of Health and Human Services experiencing some of the greatest spending increases, according to state officials. Among the biggest drivers of state costs at the March forecast were special education and long-term disability waivers. The state has already identified special education transportation reimbursements as a target for cuts.
Minnesota’s difficult state budget forecasts over the past few fiscal quarters have represented a turn-around from late 2022, when MMB projected a nearly $18 billion surplus in the coming biennium.
The Democratic-Farmer-Labor-controlled state government passed a more than $70 billion state budget the following year that grew spending by nearly 40%, though much of that stemmed from one-time spending.
In June of last year, the Legislature — which is divided closely between DFL and Republicans — passed a $66 billion two-year budget, close to $5 billion less than the 2023 budget.
“Today’s forecast is a reminder that when our economy grows, the state’s budget outlook improves and creates more opportunities for all Minnesotans,” said Doug Loon, president and chief executive officer of the Minnesota Chamber of Commerce, in a written statement. “It’s concerning that spending growth continues to outpace revenue growth. Enacting policies that grow our economy can help eliminate this gap and reduce pressure on taxpayers.”
Walz and elected leaders from both major parties were expected to deliver remarks after the full budget forecast is presented early Friday afternoon.
Also Friday, student protesters against Immigration and Customs Enforcement action planned a walk-out and sit-in at the state Capitol rotunda around 1 p.m.
Past state budgets
Here’s a rundown of the past two-year budgets:
• 2025 — $66 billion.
• 2023 — $72 billion.
• 2021 — $52 billion.
• 2019 — $48 billion.
• 2017 — $46 billion.
• 2015 — $41.5 billion.
• 2013 — $38 billion.
• 2011 — $35.7 billion.
This story will be updated.
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