ST. PAUL, Minn. — ST. PAUL, Minn. (WCCO) Minnesota is expected to have a $616 million surplus in the next two-year budget, state officials said Wednesday, but a $5 billion deficit looms in coming years — setting off a debate in the Legislature on how to rein in spending to avoid that projected deficit.
That surplus for the next biennial period, which covers the 2026 and 2027 budget years, shrank by $1.1 billion compared to what officials expected at the end of this year’s legislative session. There is a structural imbalance — spending exceeds revenue — but a carried forward balance softened the impact and left some money for lawmakers as they craft the next budget when they return in January.
But if the state continues at this pace, the state will see a deficit in fiscal years 2028 and 2029. The costs of special education and facilities for the disabled are two factors driving up expenditure, the forecast showed.
“Like many other states, Minnesota is facing significant economic and financial headwinds,” said Erin Campbell, commissioner of Minnesota Management and Budget, who cited a decline in COVID-era federal stimulus funding and related consumer and business spending , which increased tax revenues. in the state.
Campbell underscored that the short-term budget decisions lawmakers make next year will have implications for years to come, so they must act wisely. Providing a four-year budget forecast with this information will help them correct course, she said.
“Not only do we have a report of a problem on the horizon, we also have ample time to take action and change the trajectory,” she explained.
Gov. Tim Walz told reporters that “everything is on the table” to address the state’s financial prospects when the Legislature returns in January, this time with a divided government. The House now stands in case of a draw of 67 against 67, ending the DFL trifecta that has defined the last two years.
Republicans, in response to the predicted news, quickly blamed Democrats for bringing the state’s finances to the brink. They noted how Management and Budget warned last year of the discrepancy between the amount of money the state spent and the revenue it collected.
“The results we saw with this budget forecast released today are exactly what House Republicans have been warning would be the case for the past two years,” House Republican Leader Lisa Demuth said. R-Cold Spring. “The Democrats ignored those warnings from the Republicans. They ignored the warnings of their own party’s government, and now we have another $5 billion deficit projected just a few years from now.”
Meanwhile, DFL leaders highlighted the state’s robust rainy day funds, which total more than $3 billion, and tempered some concerns about the state’s future finances, promising a balanced budget and working together this year to achieve it to get together.
“I am confident that we will do what we have done in previous cycles, which is to responsibly manage Minnesota’s budget to maintain long-term economic stability and surpluses,” said House Speaker Melissa Hortman, DFL Brooklyn Park.
Demuth promised that House Republicans would send letters to all government agencies seeking information on how many full-time jobs for which they receive state aid are unfilled; the rental conditions for buildings that may not be fully used as a result of hybrid work; and how many “DEI employees” have been added in each department.
She suggested that the latter should be streamlined so that staff are not duplicating work.
“Given that we have a budget crisis on the horizon, we must start now to evaluate the efficiency of our state programs and root out the hundreds of millions of dollars in fraud that is likely still taking place within state government. she said.
The next parliamentary term starts on January 14. Click here to view the full budget documents.
