Minnesota budget surplus falls by $160M in latest forecast, looming deficit grows to $6B
Minnesota's surplus for the next two-year budget has plummeted by $160 million, according to the latest forecast, which cites federal policy changes and inflation as reasons for the decline.
In December, officials forecast a $616 million surplus for fiscal years 2026 and 2027. On Thursday, the projected balance is now $456 million, according to Minnesota Management and Budget, a shrinkage of nearly 26%.
"Minnesota's budget outlook has been adjusted downward amid significant near-term economic and fiscal uncertainty," the office said.
If the state continues to outspend its revenue growth, there will be a deficit of nearly $6 billion in future years, officials said — $852 million worse than the previous forecast. In November, officials warned lawmakers should consider that possibility when crafting the next two-year budget.
"Shifting policies at the federal level introduce significant uncertainty to the projections," Minnesota Management and Budget said.
Officials were expected to release the full budget forecast and more information at noon on Thursday. State leaders are expected to speak shortly after that.
After the December forecast, state Republicans were quick to blame Democrats for overspending when they controlled the House, Senate and governor's office. DFL leaders in response said the state had a robust rainy day fund and vowed to balance the budget through bipartisan work.
Lawmakers react to Minnesota budget outlook updates
Republican House Speaker Lisa Demuth said Republicans warned this would happen.
"We cannot and will not raise taxes to fill this gap, especially after Democrats raised taxes on Minnesota families by more than $10 billion over the last two years. My expectation is that Democrats will come to the table with savings and cuts — not tax increases — to fix the mess they created," Demuth said. "House Republicans are ready to work toward a responsible balanced budget that funds our priorities and protects vulnerable Minnesotans while addressing the fiscal disaster Democrats have created."
Senate Minority Leader Mark Johnson echoed his fellow Republican's sentiments, saying "Minnesota Democrats broke Minnesota's budget."
"Minnesota Democrats will be quick to blame Washington, D.C., but there is no one to blame but themselves," Johnson said. "They squandered the surplus, they raised taxes, and they wasted half a billion dollars on fraud."
Minnesota House Speaker Emerita Melissa Hortman placed the blame on President Trump, saying "the worst is yet to come."
"Instead of bringing down prices like they promised on the campaign trail, Donald Trump and Republicans in Congress are working to enact trillions in tax cuts for corporations and the wealthy, and they're going to pay for it through reckless cuts to education and health care for children, families, seniors, and people with disabilities," Hortman said.
Meanwhile, Senate Majority Leader Erin Murphy said that the forecast affirms that lawmakers have "made sound decisions that put us in the best possible position to face the challenges ahead." She went on to lay blame at the feet of Mr. Trump:
"Never in our history have we had to do that work up against a President who seems hellbent on ruining the American economy. Only one thing has changed since the November forecast, and that is the election of Donald Trump. In the less than two months since his inauguration, consumer confidence has plummeted, the stock market has tanked, and more than 170,000 Americans have lost their jobs. In Minnesota, his recklessness has shrunk our state surplus by $160 million.
"The DFL will continue to stand up for our kids, schools, families, hospitals, veterans, people with disabilities, farmers, and seniors. And we will pass a balanced, equitable budget that does everything we can to protect Minnesotans from Trump's chaos and Elon Musk's chainsaw."
Democratic legislators say at the moment, without the federal cuts, the state is in good financial shape.
Amidst all this uncertainty, state Republicans and Democrats will have to work together vey soon.
The legislature will have to agree on a budget by the last day of session, which is May 19. If they don't, lawmakers will have to go into special session and the state will shut down starting July 1.
