There is an agreement in St. Paul that the state budget is out of control. Gov. Walz and both chambers of the legislature have proposed lower spending in the next four years.
Proposed reductions for the 2026-27 biennium range from $720 million to $1.15 billion, with the House seemingly proposing the most cuts. Similarly, in the 2028-29 biennium, the House proposes $2.6 billion in spending cuts, compared to $2 billion by Walz and $1.7 billion by the Senate.
The devil, however, is in the details. So, how do these proposals compare, and what does each proposal mean for the state budget?
Like Walz’s budget, the Senate and House targets also do not balance the budget. Additionally, all three proposals fail to significantly curtail Health and Human Services (HHS), the fastest-growing expenditure poised to overtake E-12 education in the 2029 fiscal year. The House proposal, which seemingly has the largest spending cuts, mainly deals with discretionary inflation, inflating savings.
Figure 1: Proposed General Fund Spending Cuts (Compared to the February 2025 Forecast Baseline), Billion $
Spending exceeds revenue under each plan
According to Minnesota Management and Budget (MMB), Walz’s budget proposal will result in Minnesota spending $66.3 billion in the 2026-27 biennium. While this is about a quarter billion dollars less than MMB’s February 2025 estimate, it is over $1 billion higher than the revenue to be collected in the period. In the 2028-29 biennium, spending exceeds revenues by $2 billion, or nearly $3 billion after adding discretionary inflation.
Figure 2:Figure: Current Revenues vs. General Fund Spending, Walz Budget Proposal (Billion $)
The Senate plan lands Minnesota in the same position but with a slightly higher structural deficit in the 2028-29 biennium. Walz’s budget plan, for instance, leaves Minnesota with a $342 million surplus in the 2028-29 biennium. Under the Senate plan, that surplus will be $114 million.
The House plan substantially cuts spending only when inflation is included. Since both the Senate and Walz’s plan also zero out inflation in the 2026-27 biennium, savings under the House plan are significantly lower in comparison.
When discretionary inflation is taken out, the House budget plan reduces spending by only $14 million in the 2026-27 biennium and $1 billion in the 2028-29 biennium. By rough estimates, spending exceeds revenues by over $2 billion in the 2026-27 biennium and nearly $4 billion in the 2028-29 biennium under the House plan.
HHS: nibbling at the edges
Led by Medical Assistance (MA), MMB expects HHS to grow from $21.3 billion in the 2024-25 biennium to $24 billion in the 2026-27 biennium. HHS spending will reach $27 billion in the 2028-29 biennium. HHS will grow so fast it will exceed E-12 education, which has long been the state’s largest expenditure, in the 2029 fiscal year. Together, HHS and E-12 education will account for over three-quarters of the state budget, displacing other public services.
Figure 3: General Fund Health and Human Services Spending, No Discretionary Inflation (Billions $)
Under the proposed spending targets, lawmakers leave this trend untouched. HHS spending will be reduced by a maximum of about half a billion dollars in the 2026-27 biennium and $1.4 billion in the 2028-29 biennium.
Figure 3: Proposed HHS spending cuts, no discretionary inflation (Billion $)
As a result, HHS spending will continue to grow compared to the 2024-25 biennium. Under Walz’s plan, HHS will reach $23.9 billion in the 2026-27 biennium and $26.1 billion in the 2028-29 biennium. This would be over 72 percent higher than 2022-23 spending and 23 percent higher than 2024-25 spending.
Additionally, Walz’s plan, while it offers the highest HHS spending reduction among the three, also includes a tax increase of $140 million on health insurance companies in both the 2026-27 and 2028-29 bienniums. So, actual spending reductions are even lower.
House plan inflates savings
By statute, the legislature has to appropriate discretionary inflation funds before they become available in the budget. Perhaps following MMB practice, the House budget plan has added inflation to spending totals, committing those funds to the budget before they are appropriated. This inflates both the budget and potential savings under the plan.
Without including inflation, savings for the 2026-27 biennium are only about $14 million under the House plan. This is only 0.02 percent of the budget.
On the bright side, if the House plans to repeal the statute that requires MMB to include discretionary inflation to the budget forecast, it would force the legislature to more explicitly appropriate any additional spending, potentially improving transparency. Still, this does little to curb future spending growth.
The House proposal also trails behind the other two proposals in dealing with rising E-12 Education spending. While the governor and the senate have nearly $700 million in E-12 spending cuts, the House proposal raises E-12 spending by $40 million in the 2026-27 biennium and proposes no cuts in the 2028-29 biennium.
The legislature needs to be bold
It is encouraging that lawmakers recognize the unsustainable trajectory of the state budget. However, the proposed targets do not go far enough to ensure long-term budget sustainability. Spending exceeds revenues under all three proposals, locking Minnesotans to a future of persistent deficits.
Correcting the substantial spending increases of 2023 will require significant spending reductions, particularly in HHS and E-12 education. The proposed budget targets fall short of addressing this reality.