Minnesota's projected surplus increases to $3.7 billion, but potential warning signs in future years
ST. PAUL, Minn. — Minnesota is projected to have a budget surplus of more than $3.7 billion this biennium, according to state budget officials, who urged lawmakers to spend wisely this session to avert a potential future deficit.
The latest surplus represents an increase of more than $1.3 billion compared to the November projection from Minnesota Management and Budget, which was $2.4 billion for this two-year budget cycle ending next June.
Budget officials credit higher tax collections, especially from corporations, for the uptick. Spending estimates remain largely unchanged, they said, and the "near-term economic outlook has improved" with growth expected through 2027.
But the warning signs from last fall's budget forecast remain the same. Erin Campbell, commissioner of Minnesota Management and Budget, said that projections show revenues will not keep pace with spending in the next budget cycle, creating a "structural imbalance" of $1.5 billion for fiscal years 2026 and 2027.
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She emphasized that the current surplus can "mitigate" that. But the imbalance could lead to a potential deficit down the line if lawmakers aren't careful.
"In order to protect the investments that are made in programs that serve Minnesotans, it will be important that policymakers exercise caution in enacting additional ongoing spending this legislative session," Campbell said.
If the legislature doesn't spend any of the surplus on supplemental budget items this year, the money will carry over and provide another surplus cushion. But anything they spend this year will mean less money on the bottom line when lawmakers in January craft the next two-year budget.
Meanwhile, some stakeholders are already vying for a slice of the surplus this year, teeing up a battle between competing priorities that come with additional price tags when there isn't enough money to go around.
"I don't want to dismiss that there's more than we can do," Gov. Tim Walz told reporters. "But I think it's important to have a systematic, long-range approach to this."
Republicans on Thursday criticized Democrats for the projected structural imbalance, blaming the current budget the DFL approved—which is the largest ever due to a surge in one-time spending—for endangering the state's future financial health.
"That deficit is due to the reckless, irresponsible and unaffordable spending spree last year," said House Minority Leader Lisa Demuth, R-Cold Spring.
Walz said his supplemental budget request may be under $100 million. He and DFL leaders in the majority both said their primary focus is on a bonding bill supporting infrastructure improvements, which does not tap into the state's General Fund.
"It's great that we have $3.7 (billion) in the near term, but we have our eyes on that structural imbalance in [future years]," said House Speaker Melissa Hortman, DFL-Brooklyn Park. "So I do not foresee making any commitments to spending that we can't pay for."
State law requires Minnesota Management and Budget to put out a forecast in February and November each year, which informs the work of the legislature. Lawmakers will craft the budget for fiscal years 2026 and 2027 next January.