Minnesota’s financial landscape has taken a notable turn, with the state projecting a budget surplus of nearly $2.5 billion for the current two-year budget cycle. This figure, released on November 30, 2023, by the Minnesota Department of Management and Budget (MMB), reflects a slight improvement from earlier estimates. However, the forecast indicates a concerning shortfall of almost $3 billion for the subsequent two years.
The updated budget forecast shows a considerable change from the March projections, which estimated a mere $456 million surplus in the 2026-2027 biennium, alongside a more severe expected deficit of $6 billion for 2028-2029. Factors contributing to the current surplus include “better-than-expected fiscal year close and higher near-term revenue collections,” as noted in MMB’s summary. Nonetheless, these gains are tempered by rising spending estimates.
Structural Challenges Ahead
While the budget outlook for the current biennium appears stable, MMB warns that structural budget challenges persist. The agency highlighted increasing health care costs and sluggish economic growth as significant hurdles for Minnesota as the decade progresses. Despite these challenges, the state’s general fund reserves remain robust, holding strong at their statutory target of $3.8 billion.
The updated figures represent a marked improvement from the last major budget update in March 2023. At that time, state officials expressed concerns over “significant near-term economic and fiscal uncertainty,” largely due to tariffs and other policy changes during the administration of former President Donald Trump. The potential impact of future federal program cuts on Minnesota’s budget remains uncertain.
Historically, Minnesota’s fiscal situation has fluctuated. Just over two years ago, MMB indicated a nearly $18 billion surplus. That year, a Democratic-Farmer-Labor-controlled state government approved a state budget exceeding $70 billion, which represented almost a 40% increase in spending, primarily driven by one-time expenditures.
In June 2023, a closely divided legislature passed a $66 billion two-year budget, approximately $5 billion less than the previous budget. Among the areas facing reductions is special education transportation aid, highlighting the need for state leaders to implement spending cuts to address future fiscal shortfalls.
Looking Ahead
MMB plans to provide a more comprehensive presentation of its budget forecast during a noon news conference, featuring remarks from Gov. Tim Walz and legislative leaders from both parties. The November forecast, typically released in early December, offers Minnesota lawmakers a clearer picture of the state’s finances as they prepare for the upcoming legislative session.
An updated forecast from MMB is expected in early March, marking a significant point in the legislative process when decisions regarding state spending are typically made. Notably, the state will not need to pass a two-year budget in 2026, as this occurs in odd-numbered years.
As Minnesota navigates its budgetary challenges, the implications of these financial decisions will undoubtedly resonate throughout the state, impacting various sectors and communities in the years to come.
