Minnesota’s near-term surplus shrinks, while projected deficit grows to $6 billion

Minnesota’s projected budget surplus for the next two years has shrunk amid economic uncertainty, and a deficit anticipated down the road has grown to about $6 billion.

State budget officials released topline details of Minnesota’s latest economic forecast Thursday morning. The state now has a projected surplus of $456 million for the next two-year budget cycle, which is $160 million lower than previous estimates. And the future projected deficit in the 2028-2029 biennium has grown from the last $5.1 billion estimate released in December.

“Shifting policies at the federal level introduce significant uncertainty to the projections,” Minnesota Management and Budget’s forecast said.

Budget officials will present more details about Minnesota’s economic outlook at a news conference Thursday afternoon. The economic forecast sets the stage for spending discussions at the Capitol; the Legislature must work with Gov. Tim Walz to pass a new two-year state budget by its May 19 adjournment deadline.

With the near-term surplus and future deficit in mind, state Budget Commissioner Erin Campbell urged legislators in December to “take the long view” when setting the next budget.

Skyrocketing costs of long-term care for people with disabilities and special education for students were the biggest drivers of the projected deficit back in December.

Walz and DFL legislative leaders framed the budget situation then as largely unavoidable, the result of an aging population and more people needing services. On Thursday, House DFL leaders blamed President Donald Trump for the state’s worsening economic outlook.

Since taking office in January, Trump has laid off federal workers, imposed tariffs on the country’s biggest trade partners and attempted to broadly freeze federal spending.

U.S. House Republicans also advanced a budget package in late-February that proposes steep federal spending cuts, which could affect Medicaid funding. Federal cuts could worsen Minnesota’s turbulent budget outlook.

“Minnesota is already starting to see the negative impacts of Donald Trump’s chaos, cruelty, and incompetence, with inflation, tariffs, and uncertainty taking their toll on our economy and state budget. And the worst is yet to come,” House DFL leader Melissa Hortman said in a statement.

GOP legislative leaders said the blame lies with DFLers for spending most of the state’s previous $17 billion surplus. Democrats used the historic surplus in 2023 to pass a nearly $71 billion two-year budget, the largest in state history. It included some one-time spending as well as new programs that grew the state budget.

“House Republicans warned that the out-of-control spending increases and tax hikes passed by the Democrat trifecta would wreak havoc on our state budget,” House Speaker Lisa Demuth, R-Cold Spring, said in a statement Thursday.

The state’s next two-year budget is expected to be closer to $66 billion without the one-time expenses.

Walz and legislators will have to make hard decisions in the coming months. The governor released a budget proposal in January that would substantially reduce projected state spending on Medicaid waivers for low-income Minnesotans with disabilities.