Minnesota Senate DFLers propose up to $2.5B in spending cuts, pullbacks on some inflation-related spending

To stave off a looming deficit, Minnesota Senate Democrats released a budget framework Friday that includes up to $2.5 billion in spending reductions over the next four years and pullbacks on inflation-pegged increases.

The Senate DFL plan calls for health and human services spending to be reduced by as much as $1.3 billion over the next four years. It also calls for as much as $687 million in education spending reductions in the 2028-2029 budget cycle, among other changes.

But committees in the DFL-controlled Senate could also choose to raise revenue through taxes or fees, which could minimize the extent of potential spending cuts.

“You will see a mix of some spending reductions, some modest revenue,” said Senate Majority Leader Erin Murphy, DFL-St. Paul.

The newly released spending targets set the parameters for Senate committee chairs to craft budget bills. Gov. Tim Walz has proposed his own budget plan, and leaders of the evenly split House are expected to release their spending targets next week.

Walz and legislators will ultimately have to reconcile their spending proposals to pass a two-year state budget. A new budget must be in place before July to avoid a government shutdown.

Minnesota’s next two-year budget is expected to total about $66 billion.

Murphy said the spending outline proposed by her caucus would allow the state to preserve its new child tax credit, free school meals program and other things “that we passed in 2023 that are most important to us.”

“We’re doing the best that we can given the circumstances. ... We have to balance this budget,” Murphy said in an interview. “That’s our job. And there is a lot of chaos and uncertainty coming from Washington, D.C., so we know we could do this job and then later this summer or fall be facing deep cuts in Medicaid, deep cuts to our public schools, deep cuts to SNAP.”

“We will have to confront that if it happens,” Murphy added. “I hope it doesn’t.”

Minnesota was already facing a projected budget shortfall before President Donald Trump took office, with the state outlook driven mostly by rising long-term care and special education costs, as well as overall spending growth. The state’s economic outlook worsened in recent months amid economic uncertainty from tariffs and other changes at the federal level.

In early March, state budget officials released an economic forecast showing Minnesota’s projected surplus for the next two years had shrunk to $456 million, while an anticipated deficit in the 2028-2029 biennium increased from $5.1 billion to $6 billion.

That economic forecast assumed the state would spend about $3.6 billion on discretionary inflation increases over the next four years. Discretionary inflation spending is for state programs that do not have inflationary increases built into their funding formulas. These programs make up nearly 40% of the state’s budget.

If the state takes discretionary increases for those programs off the table for the next four years, the projected 2028-2029 budget shortfall shrinks to about $2.4 billion. Senate Democrats are taking that approach, cutting discretionary inflation spending to help balance the budget.

“Our Republican colleagues talk about [the deficit] as $6 billion all the time,” Murphy said. “The real number is $2.4 billion.”

Senate Minority Leader Mark Johnson, R-East Grand Forks, criticized the DFL’s budget targets, saying they “seem to align with Governor Walz’s plan to cut services for disabilities and special education, which is the wrong way to balance the budget.”

“We know there is wasteful spending going to non-citizens here illegally, nonprofits with no accountability, and boondoggle trains that have reached the end of the line,” Johnson said in a statement Friday. “We will continue to draw attention to this failure to put Minnesotans first.”

The Senate DFL plan takes a more gradual approach to the upcoming two-year budget, calling for a spending reduction of up to $754 million. But for the 2028-29 period, Senate Democrats are proposing a larger reduction of up to $1.7 billion.

Walz’s budget proposal is similar in that regard, calling for a more modest reduction in 2026-2027 followed by a steeper cut in the following two years.

There are differences between the governor’s and Senate DFL’s plans. Walz is proposing a deeper cut to health and human services spending, as much as $1.9 billion over four years.

Meanwhile, the Senate DFL is proposing a $100 million funding increase for higher education in the next two-year budget cycle. Murphy noted the state grant program is facing a major shortfall and needs funding.

Senate Democrats’ budget framework also accounts for a bonding bill of “up to $1.3 billion,” a spokesman said. The public works borrowing bill would help pay for infrastructure projects.

The DFL-controlled Senate will have to find middle ground with the Minnesota House, evenly split between Democrats and Republicans.

House Speaker Lisa Demuth, R-Cold Spring, said Wednesday that she will not agree to any tax increases.

Demuth said she thinks the state needs to make meaningful spending reductions “sooner rather than later.”

“If the forecast going forward over the next year, year and a half, gets better, that leaves more flexibility,” Demuth said. “But we can’t put off what we already know today.”

Murphy said she’s met with both Demuth and House DFL Leader Melissa Hortman, and is confident they can work together.

“There is a real expression of will to get to joint targets and to meet us in the targets that we’re going to put forth,” Murphy said. “That by itself gives me confidence in our ability. But they are in uncharted water, if you will, in the fact that they are tied and their committees are evenly split.”

Briana Bierschbach of the Minnesota Star Tribune contributed to this story.