Dependency problem

How the One Big Beautiful Bill Act forces the state to confront spending

Like every state, Minnesota relies on the federal government for a substantial portion of its funding. According to July 2025 estimates, during the 2026-27 biennium, Minnesota is expected to spend $134 billion, with a third of this amount covered by the federal government. Health and Human Services (HHS), which encompasses numerous welfare programs, will account for 80 percent of all federal spending in Minnesota, with the majority of funds allocated to the Medicaid program. And while federal grants historically made up a quarter of Minnesota’s total revenue before the 2007-09 Great Recession, that share currently hovers at approximately 35 percent.

The federal government’s mounting national debt leaves Minnesota’s growing reliance on Washington, D.C. in a vulnerable position, threatening fiscal stability and ultimately affecting taxpayers. Nothing exposes this more than the recently passed One Big Beautiful Bill Act (OBBBA), which reduces federal spending by more than a trillion dollars and forces states to either scale back Medicaid or cover a larger share of the bill. Even worse, OBBBA is likely only the beginning of further cuts to come, given persistent federal deficits.

That reality should serve as both a warning and an opportunity for Minnesota to take the lead in pursuing sustainable fiscal reforms.

Lawmakers should adopt commonsense OBBBA provisions that many Minnesotans already support, such as Medicaid work requirements and frequent eligibility checks. More broadly, they should revisit the 2025 session, rein in out-of-control spending, and adopt a disciplined approach to the budgeting process. This could include repealing costly welfare expansions enacted in the 2023 legislative session, enacting a constitutionally binding limit on future spending growth, slowing growth in Medicaid long-term care waivers, and reinstating pro-work requirements in Minnesota’s main cash assistance program.

Federal funds are not free; they are taxes that Minnesotans pay to the federal government, which are then redistributed back to the state. Even more importantly, many federal dollars are earmarked for specific purposes, effectively shifting state decision-making power to Washington, D.C. Nearly every program that draws on federal money also requires a state match, so new grants often come at the price of higher state spending. Take the Southwest Light Rail extension running from Minneapolis to Eden Prairie. In 2011, the 14.5-mile rail line was initially expected to cost $1.3 billion, with the federal government covering half the cost. By July 2025, however, the price tag had surged to $2.8 billion, pending the project’s 2027 completion date. After a $929 million federal grant in 2020, state and local taxpayers are left to cover the remaining $1.8 billion, nearly three times their original $625 million share.

A similar example can be seen in programs like Medicaid, where matching funds create the illusion of affordability while shifting long-term costs onto taxpayers. Looking only at state funds, Minnesota’s spending on HHS programs grew by 118 percent between 1997 and 2024. But after accounting for federal contributions, spending rose nearly 200 percent during the same period, suggesting that federal dollars increasingly cushioned and thus encouraged program expansions beyond what the state could sustain on its own. Between 2024 and 2029, nearly half of all new spending in the state budget will be allocated to HHS. Medicaid alone will account for $34 of every $100 of new spending. Consequently, Minnesota is projected to spend more than it collects in revenue every year in that period, leaving taxpayers to absorb the growing costs of HHS. Absent reforms, OBBBA’s Medicaid cuts will likely create a larger hole in the state budget, exacerbating future fiscal challenges.

Minnesota has ceded too much control to Washington, placing the future of the state budget and economy at risk. The only way to regain authority over both spending and policy is to dial that back, get the budget under control, and bring government closer to the people it serves.