Minnesota’s $6 billion deficit is self-inflicted

Right on cue, the release of the February 2025 budget focus has ignited a second round of blame games. A new candidate, President Trump’s chaotic policymaking, is seemingly now in the middle.  

At some point, however, Minnesota lawmakers must pass a balanced budget. And if legislators are serious about resolving the budget deficit, and ensuring a sustainable budget in the future, they need to have a serious conversation on how we got here.

So, here is a recap of the last two years.   

The $18 billion surplus

The 2022-23 budgeting cycle ended with over $12 billion of left-over funds brought forward into the 2024-25 biennium. To maintain the 2022-23 service level, Minnesota Management and Budget (MMB) estimated in February 2023 that the state government would need to spend $55.5 billion in the 2024-25 biennium. This included inflation and left another $5 billion on the table. In total, the then DFL-controlled legislature had a $17.5 billion surplus to work with at the beginning of the 2023 legislative session.

February 2023 Forecast:

Looking a little further into the future, the picture was also more than positive. MMB pegged spending for the 2026-27 budgeting cycle at $59 billion. Again, this included inflation. Revenues to be collected in that period were $64 billion — over $5 billion higher than expected spending.

Total Current revenues vs. General fund spending (including inflation), February 2023 Forecast, Billion $

The 2023 Session

In the 2023 session, however, lawmakers raised the budget for the 2024-25 biennium to $70 billion — up $15 billion from the $55.5 billion February baseline. The state budget grew by over 30 percent compared to the 2022-23 biennium, going from $52 billion to $70 billion.

It was after the 2023 spending hikes that the state budget started flashing red. MMB data published in July showed spending exceeding collected revenues every year between 2024 and 2027, only that the historic surplus masked this unsustainable trend. The November 2023 forecast showed the same thing, as did the February 2024 forecast — that Minnesota was spending above its means.

Current revenues vs. General Fund Spending, End-of-session 2023 estimates

Minnesota’s looming budget deficit was not only avoidable but also predictable. The historic 2023 surplus was largely a one-time windfall tied to federal government spending. Using that one-time money for long-term commitments was bound to cause some issues.

In the February 2025 forecast, much like in the November 2024 forecast, MMB expects spending to exceed current revenues for the entire period between 2024 and 2029. Slice that whatever way, it says one thing, the health of the state budget is frail and has been for some time. The November 2024 and February 2025 forecast numbers are merely a culmination of spending decisions made over two years, ago, signs of which were already there at the end of the 2023 session.

Current revenues vs. General fund Spending, February 2025 Forecast (Billion $)

The culprits: HHS and E-12 education

In the 2023 session, lawmakers allocated over $12 billion of new funds to Health and Human Services (HHS) and E-12 education. Most of the new money, especially in HHS, was used to accelerate growth in programs that were already expected to grow, such as Long-term Care Waivers (LTC) under the Medical Assistance (MA) program.

HHS spending for the 2024-25 biennium grew from the $18 billion baseline put forward by MMB in February 2023 to nearly $21 billion by the end of the 2023 session. In the February 2025 forecast, MMB pegs HHS spending for the 2024-25 biennium at over $21 billion. Similarly, HHS’s February 2023 baseline for the 2026-27 biennium was $20 billion. Lawmakers raised this baseline to $22.3 billion in the 2023 session. Since then, spending has grown to over $24 billion.

HHS general fund spending, February 2023 forecast vs. November 2024 forecast

E-12 education and HHS are expected to grow so fast that they consume more than all the extra revenue the state will collect in the 2026-29 period.

Table: Per biennium growth

Per Biennium growth

By 2029, the two expenditures will take over three-quarters of the entire state budget. HHS will surpass E-12 education and become the biggest state spending category beginning in 2029 for the first time in state history.

Share of General fund spending by category

A self-inflicted wound

Minnesota would be dealing with a multibillion-dollar deficit with or without President Trump in office. While tariffs, high expected inflation, and uncertainty over federal policy have muddied the waters, they only add to a problem that was already there and had been growing.

Pretending otherwise is irresponsible and prevents fruitful discussion around what’s driving Minnesota’s fiscal problem — out-of-control HHS and E-12 education spending. These two are both the biggest and fastest-growing expenditures and are expected to consume over three-quarters of the entire state budget by 2029. Any serious discussion around the budget should start there.