On borrowed time: why Minnesota’s budget is heading for a crash

Minnesota’s budget has been on shaky ground since the end of the 2023 legislative session. The latest update from Minnesota Management and Budget (MMB) confirms that lawmakers did little to steady it during the 2026 session.

Enabled by an $18 billion surplus, the 2023 legislature raised general fund spending from $27 billion in 2023 to $35 billion in 2024 — a staggering 26 percent increase after adjusting for inflation. This massive expansion has left the state government spending more money than it takes in each year.

In 2024, Minnesota spent $4.7 billion more than it collected in revenue. The gap has shrunk, but the trend remains the same. Over the current forecast period, spanning 2026 to 2029, spending continues to outpace revenue by an average of $1.6 billion a year.

Source: Minnesota Management and Budget

Health and Human Services (HHS) — the catch-all budget category for various means-tested programs, such as Medicaid — has driven the majority of budget growth. While the 2026 legislature delivered some trims, those reductions are temporary. The overall upward trajectory of HHS remains untouched.

The multi-year shift is profound:

  • In 2023, the state spent $8.2 billion on HHS programs. This was $2 billion less than what went toward E-12 education.
  • By 2026, due to permanent spending increases enacted in 2023, HHS costs climbed to $12.9 billion. This is a more than 50 percent nominal increase in just three years.

Meanwhile, E-12 education grew by a modest 25 percent, reaching $12.8 billion. As a result, the 2026 fiscal year marked the first time in state history that Minnesota spent more on Health and Human Services than on E-12 education. MMB data shows that this will happen again in 2029, when HHS spending is projected to exceed $14 billion.

HHS’s expansion is particularly striking when viewed as a share of the budget. In 2000, HHS accounted for less than a quarter of all state spending. E-12 education comprised 38 percent, and all other public services made up the remaining 39 percent.

In 2025, however, HHS spending exceeded the combined total of all other state public services outside of E-12 education. Between 2026 and 2029, HHS will consume over a third of the entire general fund. Together, E-12 education and HHS will account for three-quarters of the budget by 2029, leaving little room for everything else.

Source: Minnesota Management and Budget

Facing the November cliff

If the state is spending above its means, what explains the current budget surplus?

The answer lies in the past. In addition to the revenue it collects every year, the state is relying on billions of dollars left unspent from previous fiscal years. These carryover balances are what’s keeping the state budget afloat.

Excluding money deposited in the rainy day fund, the 2026-27 biennium is expected to end with a $3.1 billion balance. This leftover cash is what closes part of the spending and revenue gap in the 2028-29 biennium. However, because the structural gap exceeds $3.1 billion, MMB projects a baseline deficit of $55 million at the end of 2029. When accounting for inflation, the projected shortfall balloons to $1 billion.

When MMB extends the official budget forecast this coming November, Minnesota will likely see its remaining balances wiped out, giving way to an official budget deficit each year beginning in 2029 and beyond. At that point, the state’s fiscal situation will become much harder to ignore. Unfortunately, because lawmakers have used temporary balances to fund permanent growth, the deficit will also be much more difficult to fix.