Addressing rising welfare spending is key to fixing the budget deficit

Two things can be true at once: assistance or welfare programs provide an important lifeline to vulnerable Minnesotans. However, the surge in spending on these programs is unsustainable for the state budget and the economy.

As American Experiment’s most recent report illustrates, the Minnesota state budget has a structural problem, with spending expected to exceed collected revenues every year between 2024 and 2029. Growth in assistance programs is the main driver of this trend.

Adressing rising welfare spending is, therefore, essential to resoving the budget deficit. Tax hikes, by contrast, will only raise prices and put strain on the state economy.

Welfare spending is driving state budget growth

The state government oversees various public services, all vying for limited funds. Historically, E-12 education — funding for K through 12 education as well as some early childhood programs, like Early learning scholarships — has been the state’s largest expenditure.

In 1990, E-12 education accounted for 32 percent of total general fund spending. Health and Human Services (HHS), funds encompassing assistance programs targeted toward low-income Minnesotans, from Medicaid to childcare and cash aid, was the second largest expense, making up 21 percent of the budget. Due to fast growth, however, HHS has been slowly catching up and is expected to exceed E-12 education spending.

HHS grew by 288 percent between 1990 and 2023, for instance, making it the fastest-growing major expenditure in the budget. E-12 education, the second fastest-growing expenditure, rose by half the HHS growth rate during the same period.

Future growth

In the February 2025 forecast, MMB estimated that HHS would cost $24 billion in the 2026-27 biennium — the period starting July 2025, and ending June 2027. This is up from $21 billion spent in the 2024-25 biennium, (the period between July 2023 and June 2025), and $4 billion higher than was estimated in the February 2023 forecast. For the 2028-29 biennium, HHS will exceed $27 billion.

Overall, HHS is expected to grow by 46 percent between 2023 and 2029. During this period, it will contribute over 94 percent of all general fund spending growth. E-12 education follows second, contributing 40 percent of growth.

HHS will consume nearly all new revenue to be collected between 2026 and 2029. As noted in the report,

Total collected revenues will be $9 billion higher in the 2026-29 period compared to the 2024-25 biennium, but HHS and E-12 education will consume over 100 percent of this revenue growth. In nominal terms, HHS will increase by $8.8 billion (99 percent of revenue growth) in the 2026-29 period compared to the 2024-25 biennium, and E-12 education will increase by $3.8 billion (42 percent of revenue growth) in the same period.

HHS and E-12 education will comprise over three-quarters of the state budget by 2029. This is up from 62 percent in 2024 and 53 percent in 1990. HHS will also exceed E-12 education in 2029 to become the state’s largest expenditure. Spending on other programs, such as higher education, will fall as HHS and E-12 education take a bigger share of the budget.

Tax hikes won’t address growing welfare spending

HHS spending will likely continue to grow beyond the 2029 fiscal year due to several reasons.

First, Minnesota’s population, like that of most of the developed world, is aging. This will require increased spending on expensive public healthcare programs such as Medicaid.

Second, healthcare costs tend to rise faster than overall inflation. This, coupled with rising enrollment, will also continue to raise healthcare spending

Additionally, growing debt at the federal level, or potential tax cuts and austerity measures, could lead to federal spending cuts on Medicaid and other joint federal-state programs. This would necessitate an increased share of state spending.

In short, welfare spending is all but guaranteed to grow, placing sustained and mounting pressure on the state budget. Tax hikes fail to address this underlying trend and would likely only hurt the state economy.