The forecast state government budget deficit for the 2028-2029 budget biennium is likely to dominate policy and political debate in Minnesota for the next few years. The state is constitutionally required to balance its budget, so how will it close that forecast deficit?
We at Center of the American Experiment have been clear that the deficit should be closed entirely with spending cuts and that tax hikes should play no part.
What might this involve?
The deficit
Where has the deficit come from?
Figure 1 and Figure 2 come from Minnesota Management & Budget’s (MMB) November 2024 Budget and Economic Forecast Presentation. Figure 1 shows a balance carried forward — a surplus — from the 2026-2027 biennium of $616 million. Figure 2 shows that, in the 2028-2029 biennium, forecast nominal — unadjusted for inflation — spending of $71.1 billion will outstrip forecast revenues of $67.6 billion by $3.5 billion. Inflation, however, is forecast to add another $2.1 billion to the cost of delivering the services projected in the 2028-2029 biennium, pushing spending up to $73.4 billion. Once you throw in that $616 million surplus, that leaves a total deficit of $5.1 billion.
Figure 1:
Figure 2:
Minnesota’s state government spending in historical context
If we put the entire burden of closing this budget deficit on the spending side of the equation, won’t that take us back to the dark days of the Gilded Age? The short answer is “No.”
Figure 3 uses data from MMB’s General Fund Spending by Major Area (Since 1990) to show “Total Spending” from 1990 to 2023 and from the General Fund Analysis — Summary to show “Total Expenditures & Transfers” from 2024 to 2029. A look at the numbers on the two documents for 2024 to 2029 will show that they are the same series. Figure 3 also shows this series — which we call General Fund Spending — adjusted for inflation for the years 1990 to 2023. We use the Consumer Price Index (CPI) which MMB uses for budgeting purposes and index to 2024 using the average monthly index value for January to November. Lastly, we adjust for population increase by dividing total General Fund Spending by the population to get a per capita number. For the years 2024 to 2029, we start with the 2023 population estimate and increase that by 0.6% annually, the average growth rate over the previous decade.
Figure 3: Minnesota General Fund Spending per capita
What we see is that, in real, per capita terms, General Fund Spending in Minnesota rose from $3,507 annually to $4,969 in the 30 years from 1990 to 2019. In the six years from 2019 to 2024 inclusive, per capita General Fund Spending in Minnesota rose by 23%, from $4,969 annually to $6,112 and is forecast to increase by another 3% by 2029, hitting a new peak of $6,297.
Over the last four decades, the explosion in per-person government spending seen in Minnesota in the last couple of years — even adjusted for inflation — is unprecedented. There is ample capacity for the burden of closing the budget deficit to fall on the spending side alone.