Closing Minnesota’s Looming Budget Deficit

Preview:

The 2024 November budget forecast came with predictably gloomy news: After starting the 2023 legislative session with an $18 billion surplus, Minnesota Management and Budget projected a budget deficit of over $5 billion for the 2028-29 biennium. This deficit has grown to $6 billion with the release of the February 2025 forecast. Even more troubling, the deficit is part of a broader fiscal issue. In the 2024-25 biennium — the period between July 2023 and June 2025 — Minnesota will spend $71 billion but collect only $62 billion in (current) revenues as shown in Table 1. This leaves a structural imbalance of over $9 billion, mainly covered by part of the historic $18 billion surplus — about $12.5 billion of which was left over from the 2022-23 biennium. Similarly, the general fund budget is projected to end the 2026-27 biennium with a $450 million surplus — down from $600 million projected in the November 2024 forecast — but revenues collected in that period are over $3 billion less than total spending. This structural imbalance grows in the 2028-29 biennium, leading to a $6 billion budgetary deficit by the end of that budgeting period — or $2.4 billion after excluding inflation.

The underlying ability of Minnesota’s tax system to support the state government has been deeply compromised. Minnesota’s budget is on an unsustainable path, and immediate action is needed in the 2025 legislative session to get it under control.

Key recommendations from the policy briefing include:

• Reset the budget baseline
• Pay special attention to HHS and E-12 education
• Adopt a rule limiting future spending growth

A full copy of the policy briefing can be viewed here.