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Minnesota’s budget surplus decreasing $1.1 billion in latest forecast

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Published  December 4, 2024 11:17am CST
Minnesota
FOX 9

Minnesota leaders discuss budget forecast [RAW]

Minnesota leaders discuss the latest Department of Minnesota Management and Budget forecast, which shows a $616 million balance at the end of FY 2026-27 - $1.1 billion less than prior estimates.

ST. PAUL, Minn. (FOX 9) - Two years after seeing a record-setting projected surplus of $17.5 billion in 2023, the Minnesota Legislature will be faced with much less of a fiscal cushion this session as state leaders project a $616 million balance at the end of the Fiscal Year (FY) 2026-27 biennium.

The Brief

    • 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.
    • An end-of-session forecast projected the surplus took a $424 million hit between February and the end of the session.

What we know

Minnesota’s Department of Minnesota Management and Budget (MMB) produces statewide budget forecasts based on state income and sales tax revenues, combined with spending initiatives.

MMB forecasts a $616 million balance at the end of FY 2026-27, which is $1.1 billion less than prior estimates.

According to the report, higher spending throughout the state has resulted in a growing imbalance that the Minnesota Legislature will need to navigate going forward.

Legislative leaders and Gov. Tim Walz received the report on Wednesday, which is often used as a playbook for crafting the upcoming two-year budget.

Investments in K-12 education and transportation followed the record-setting $17.5 billion budget surplus in 2023.

At that time, Democrats approved a $72 billion, two-year budget with tax credits for low-income families and tax increases for the wealthy.

But due to a lot of spending coming from the surplus, it’s not permanent. Priorities that were one-time spending will come off the books during a new budget cycle.

"While the budget is stable in this biennium, it’s obvious that spending reductions are needed to prevent a deficit down the road," said GOP Co-Majority Leader Lisa Demuth in a statement on Wednesday.

Past projections

In February 2024, MMB forecast a $3.7 billion budget surplus by the end of fiscal year 2025, and $2.2 billion after 2027.

Previously, Minnesota Republicans have argued the DFL went on a "reckless and irresponsible spending spree," that is now leading the state into the red.

Looking ahead

The amount of gross domestic product produced in Minnesota could be affected by federal tariffs if implemented by president-elect Donald Trump on foreign imports, resulting in potential retaliatory charges on products produced in the state and sent abroad.

The Source: Information provided by the Department of Minnesota Management and Budget.