By all signs, the Minnesota state budget is in trouble. While the state ends the current two-year budget period — 2026-27 biennium — with a surplus, estimates show an imbalance in the next period (2028-29 biennium). Tackling this deficit will require some honest accounting of how Minnesota got where it is today.
Certainly, tariffs and federal policy uncertainty don’t help things. But, Minnesota’s budget deficit has very little, if anything, to do with what is going on in Washington, D.C, as some claim. Minnesota’s fiscal problem is not only worse than what the headline numbers show, but it has also been going on since the end of the 2023 session.
The state’s persistent and widening structural deficit is self-inflicted and was wholly avoidable.
What happened to the budget?
To recap, Minnesota started the 2023 session with an $18 billion surplus. In the 2023 session, the legislature spent the majority of that one-time surplus expanding government programs. Welfare programs, such as Medicaid, got a substantial portion of these new funds. Not only did the legislature raise baseline welfare spending, but it also accelerated future growth rates by adjusting inflation calculations in certain Medicaid programs, such as Disability waivers.
Minnesota’s budget for the 2024-25 biennium grew from $55.5 billion in February 2023 to $69.5 billion by the end of the 2023 session. In the November 2023 forecast, it was up by another billion dollars. Welfare, or Health and Human Services (HHS), grew from under $18 billion in February 2023 to $20.6 billion by the end of the session. In the November 2023 forecast, it exceeded $21 billion.
The 2025 session addressed some of this growth by capping growth in disability waivers. However, reform did not go far enough. Looking only at baseline numbers, Minnesota will spend $68.4 billion in the 2026-27 biennium. This is over $9 billion, or 15 percent higher than was estimated in February 2023. Spending is also up $1.7 billion since the July end-of-session estimates.
Minnesota is living above its means, and that is the issue
Every year since the 2024 fiscal year, Minnesota has spent more than it collects in revenue. This is mainly due to the 2023 session changes to K-12 education, Medicaid, and other welfare programs. Without reform, the structural deficit will persist long after President Trump has left office, and any federal uncertainties are resolved.
Simply put, if Minnesota were a family, the 2023 session would be the equivalent of moving into a bigger house with a Christmas bonus while expecting a new baby — the baby being Medicaid spending that was already projected to grow, even before new policy changes. The bonus was always temporary, but the costs of the house and the child are permanent, and they continue to rise.
Just like a family that is spending above its means, nothing short of returning to a more affordable lifestyle will fix the state’s conundrum. Legislators who are serious about budget reform need to look at the ‘historic’ 2023 session for budget fixes.