DFL deficit: What was in the budget?
Three weeks past the deadline, Minnesota’s legislators finally passed a budget for the 2026-2027 biennium.
Under this budget, the state government will spend $66.0 billion in the 2026-2027 biennium, down from a forecast $70.9 in the current one, 2024-2025. Even after this reduction, state government spending in 2026-2027 will still be comfortably above any biennium prior to the current one: the previous high, 2022-2023, was $51.9 billion, 13% lower than the budget for 2026-2027.
Spending cuts
On the spending side, the budget cuts approximately $283 million from projected expenditures over the next two years, with most of the savings coming from the Department of Human Services. It also cuts taxpayer-funded healthcare for adult illegal immigrants. And, after expending much effort trying to get inflation included in the state budget, it was stripped out. The Federal Reserve will do most of the budget cutting via monetary policy.
As Minn Post reports:
“I knew that this was going to be a difficult negotiation, but of the things we worked hard to achieve in 2023 that are important for families across the state of Minnesota, almost all of them are preserved,” [Sen Erin] Murphy [DFL] told reporters after the Senate adjourned.
Indeed, policies like free school breakfast and lunch, unemployment insurance for hourly school workers, and raising per-pupil funding for students were maintained in this year’s budget.
[Rep Lisa] Demuth [Rep.] said that her Republican caucus accomplished “a budget that actually reduced spending in a common sense way and not raising taxes on Minnesotans”…
Tax increases
This isn’t quite true; there are tax increases.
The cannabis tax will increase from 10% to 15%. Data centers will now pay sales tax on the electricity they use, even though sales taxes are only supposed to be levied on final consumption sales.
Not so fast…
Minnesota is not out of the fiscal woods yet. The essential problem, that Minnesota’s state government spends more than it takes in, remains unresolved. The estimated budget deficit of $5.9 billion in the 2028-2029 biennium has not been eliminated, but only reduced to $1.9 billion.
And all this might be revisited soon. As the Minnesota Reformer reports:
Legislators could find themselves back in St. Paul later this year: Federal cuts — like those included in the Trump-backed One Big Beautiful Bill Act — could quickly put the state in a more dire financial position. In 2024, Minnesota spent $18.5 billion on Medical Assistance, Minnesota’s Medicaid program, and the federal government covered $11 billion of that. Any Medicaid cuts on the federal level will have major ramifications for the state budget, especially DHS.
During the session, I said to watch this space. Keep watching.