Minnesota’s budget deficit is down but not gone

According to the Minnesota Management and Budget (MMB), the state is still expecting a budget deficit. However, compared to the 2023 November forecast, the outlook is a little less gloomy.

The $2.3 billion deficit that MMB forecast in December last year is now down to $1.5 billion. This is mainly thanks to higher expected corporate income revenues.

The surplus for the 2024-25 biennium is also up now from $2.4 billion to $3.7 billion, mainly due to higher expected income taxes (both individual and corporate).

All in all, Minnesota’s budget appears to be in a better position than it was last December. But that does not necessarily mean all is well.

Given the small size of the cushion that lawmakers are expecting this session, especially after subtracting the size of the deficit expected in the next biennium, chances are that any unforeseen disruptions (for example with the economy, revenue collections, or spending) could translate into big problems. Corporate income tax revenues are especially volatile and risky to rely on.

But even if the picture stays the same, the extensive growth of the state budget that lawmakers undertook last session is likely going to continuously take a toll on taxpayers and the economy. Welfare spending is an especially important area to watch, as our recently released report illustrates.