Minnesota budget surplus at $2.4 billion, latest forecast shows, but possible deficit on horizon

Minnesota budget surplus at $2.4 billion, latest forecast shows, but possible deficit on horizon

Minnesota budget surplus at $2.4 billion, latest forecast shows, but possible deficit on horizon

Minnesota’s budget surplus remains at an estimated $2.4 billion, according to the latest state forecast, but officials are warning of a possible deficit on the horizon.

The latest projection, released Wednesday, comes two months after Minnesota Management and Budget (MMB) noted increased revenue adjustments and slightly lower spending from its end of the biennium report, which put the recalculated projected surplus at around $2.4 billion in October, up from nearly $1.6 billion in May.

The forecast estimates that the state would have a $2.4 billion surplus at the end of the 2024-25 biennium, if unspent by state lawmakers. However, looking at the 2026-27 biennium, the forecast says a lack of change would wipe out nearly that entire surplus, leaving only $82 million left over at the end of that biennium.

In short, MMB cites higher projected spending in health and human services and education in the coming biennium, which could create a budget imbalance despite increasing revenue.

The surplus stood at a state record of $17.5 billion back in February when the legislature was in session, but much of that was used by laws passed during this year’s session, one in which the DFL controlled the Minnesota House, Senate and governor’s office for the second time in 31 years — and the first since 2013-14. Among some of the major bills approved by state lawmakers and signed into law this year were an increase in education spending, universal free school meals, funding to combat homelessness, food insecurity and make child care more accessible, and legislation to create a paid family and medical leave program, which has already seen its projected costs rise.

The forecast notes that the school meals program is one initiative that is costing more than previously projected due to higher than anticipated participation, although that’s just one of many factors. Other factors include special education transportation, long-term care waiver services and changing estimates in the federal share of programs like medical assistance programs.

Despite the projected imbalance in the 2026-27 biennium, MMB Commissioner Erin Campbell said the state actually has more stability and is dealing with less volatility currently, there’s just more of a budget constraint than in past years.

“With rising costs of critical programs, like services to Minnesotans with disabilities, school-aged children, the elderly and others, it’s increasingly important that we’re mindful of our most important priorities when setting budgets,” Campbell said, adding that the state is “on strong footing.”

The commissioner also called the outlook for the current biennium “healthy” and said the projected imbalance in the next biennium is just “something we need to continue to monitor and be mindful of” to keep the state on solid financial footing going forward.

After the new forecast was released, Gov. Tim Walz said a bonding bill will still be high on his list of priorities going into next year’s legislative session but added that, overall, “we need to be measured.” He also repeatedly said he won’t give tax cuts to high-income Minnesotans.

“It’s not going to be like last year, it’s not a budget year, this is a supplemental budget year,” Walz added, reiterating that he expects a “very measured” approach next year and then he and lawmakers can reevaluate as MMB releases future projections.

House Minority Leader Lisa Demuth (R-Cold Spring) released a statement following the latest forecast saying, in part, that the DFL is “leading the state off a fiscal cliff.” Senate Minority Leader Mark Johnson (R-East Grand Forks) also released a statement, saying in part that the DFL’s “spending spree hurts every Minnesotan with higher taxes and costs at a time when they are desperate for relief.”

House Speaker Melissa Hortman (DFL-Brooklyn Park) and Majority Leader Jamie Long (DFL-Minneapolis) touted the forecast as showing “Democrats are growing the economy in Minnesota.” Senate Majority Leader Kari Dziedzic (DFL-Minneapolis) echoed them, adding that Minnesotans “will see the surplus returned to them in many ways that will not only put money in their pockets, but also increase economic security, and provide opportunities for them and their families.”

The state is expected to release a new projection again in February. The new legislative session is scheduled to start on Feb. 12.