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Minnesota seeing budget surpluses now, but fiscal cliff looms

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Published  December 4, 2024 6:39pm CST
Politics
FOX 9

Minnesota budget surplus projected, deficits loom

Minnesota Management and Budget projects a $5.1 billion budget deficit by 2029 on the current economic path. FOX 9’s Corin Hoggard explains where the latest projections come from, and what they could mean in the future.

The Brief

    • Minnesota Management and Budget projects a $5.1 billion budget deficit by 2029 on the current economic path.
    • MMB forecasts a $616 million balance at the end of the FY26-27 biennium, $1.1 billion less than prior estimates. In other words, there will still be a budget surplus all the way into 2027, but it keeps shrinking.
    • Projected reductions in income and sales tax revenues combined with higher spending for long-term care and special education result in a growing structural imbalance throughout budget planning.

ST. PAUL, Minn. (FOX 9) - Minnesota is in good financial shape today. But it won’t be long before that could change drastically.

The latest budget forecast came out Wednesday and it shows the state running surpluses for three years before falling off a fiscal cliff by 2029.

Source of deficit

Almost half the projected $5.1 billion deficit is inflation increases that are not locked in yet. The rest of it is mostly connected to higher spending for long-term care and special education.

And as the state heads for a mixed control legislature, there’s no agreement on how to address the looming deficit.

Forecasters recommend the legislature takes a long view starting now.

"Clearly, we have to realign the budget to make sure that spending and revenues match," said Erin Campbell, the Minnesota Management and Budget Commissioner.

GOP blames trifecta spending

Republicans say this is what they’ve been warning would come as a DFL trifecta spent a big chunk of a record budget surplus in 2023.

They’ll come into power sharing in the House in January with an eye on trimming spending.

"Minnesota does not have a revenue problem," said House Co-Speaker Designate Lisa Demuth, (R-Cold Spring). "We have a spending problem and that is resounding loudly. We have to control the spending, get rid of the fraud."

DFL: Don't light hair on fire

Democrats see the forecast through a different lens.

"This is not ‘light your hair on fire’, the things that are there," said Gov. Tim Walz. "This is a stable, balanced budget."

Gov. Walz says the budget is still balanced with more than $600 million in surplus by the end of 2027, plus a bigger rainy day fund than ever before.

Taxes, cuts on the table

He says everything is on the table to address the future deficit forecast, so he won’t rule out cutting some programs or raising some taxes.

He says legislators will have to make some tough choices — especially in the big budget items health and human services and education — but they have plenty of time.

"This is an 'over the horizon' budget issue of growing costs in an aging population and more people accessing services especially around autism," he said.

Previous deficit projection surprise

The last time MMB projected a deficit at the back end of its four-year projections was exactly four years ago, in November 2020, so the deficit it projected would be right now.

Instead, there was record spending and there’s still a $3.3 billion surplus.

That history is unlikely to repeat, but legislators have three years to work on it.

PoliticsEconomySt. Paul