REGIONAL- Minnesota’s state budget outlook could be described as moving from feast to famine, as a historic $18 billion surplus at the outset of the 2023 legislative session has drastically shifted to an estimated $6 billion shortfall for the 2028-29 biennium.
The February 2025 Budget and Economic Forecast released last week revealed that the near-term budget picture remains positive, although the projected $456 million surplus for the 2026-27 biennium is a $160 million decline from earlier estimates. But by 2028-29, the state is staring down a $5.995 billion shortfall, an increase of $852 million since November’s projection.
State officials say rising costs, particularly in education and health services, are outpacing revenue growth. Shifting federal policies have added uncertainty, leaving lawmakers divided over how to address the growing deficit.
Minnesota remains in relatively strong financial shape for now. The 2024-25 biennium is on track to end with a $3.742 billion surplus, only $10 million lower than previous projections.
Revenues for this period are now estimated at $61.728 billion, with total expenditures forecast to reach $70.975 billion, $304 million higher than November estimates. The state will rely on past budget surpluses to balance the books. The largest increase in expenses is in health and human services, which rose by $284 million due to increased medical assistance costs. Spending in other areas remained largely unchanged.
Slimmer margins
The 2026-27 budget is no longer expected to have the buffer lawmakers had hoped to see. The projected surplus has fallen to $456 million, significantly less than the $616 million estimate in November.
State expenditures will continue to rise faster than revenues. Projected revenue for 2026-27 stands at $64.494 billion, a 4.5 percent increase from the current biennium, driven largely by growth in individual income and sales tax revenues. However, corporate tax collections are expected to decline slightly due to projected lower profits.
At the same time, state spending is expected to reach $67.78 billion, a $791 million increase from earlier estimates. The most significant increases in spending estimates from November to February projections include:
 Health and human services – up $339 million to a total of $24.147 billion.
 E-12 education – rising $197 million and totaling $25.562 billion.
 Property tax aids and credits – growing by $17 million and reaching $4.753 billion.
Rising inflationary pressures are a major factor in the worsening budget outlook. The estimate for discretionary inflation has increased from $926 million to $1.145 billion.
Impending shortfall
The 2028-29 biennium projections hold the biggest future threat to state funding. The projected budget shortfall now stands at $6 billion, nearly $900 million worse than the December forecast. If inflationary cost pressures are excluded, the structural deficit would still be $3.98 billion.
“We’ve chosen to highlight the uncertainty, because it does feel really significant in this moment,” Erin Campbell, commissioner of Minnesota Management and Budget said when introducing the projections last week. She warned that federal budget decisions and potential economic shifts could either worsen or improve the situation.
Partisan debate
The worsening budget outlook has intensified the political divide at the Capitol. Gov. Tim Walz attributed the increased deficit to economic instability under President Donald Trump and shifting federal policies.
“Basically, the only thing that’s changed since November is Donald Trump’s chaos to the economy,” Walz said. “It changes day to day. It provides the uncertainty that we don’t need.”
Republicans, however, argue that Democrats’ spending decisions over the past two years are to blame.
“This was an irresponsible spending spree, and now we have to figure it out,” said House Speaker Lisa Demuth, R-Cold Spring. “We cannot and will not raise taxes to fill this gap, especially after Democrats raised taxes on Minnesota families by more than $10 billion over the last two years. My expectation is that Democrats will come to the table with savings and cuts, not tax increases, to fix the mess they created.”
But House DFL Leader Melissa Hortman countered, saying state lawmakers may have no choice but to step in if federal spending cuts on programs like Medicaid move forward.
“When the federal government walks away from its obligations, the state has to step in, and we simply won’t have the resources to keep up,” Hortman said. “This will have dire consequences for the people of Minnesota and our state budget.”
Economic trends
The state’s projections try to account for future economic trends, a picture made much more uncertain by the Trump administration’s actions in its nearly two months in office. Some tariffs and possible labor shortage from immigration restrictions have been factored in, along with an overall trend toward slowing job growth and economic growth beyond 2025 and mildly increasing inflation through 2026.
Minnesota’s economic outlook mirrors national trends, though its softening job market remains slightly stronger than the rest of the country. Lower birth rates and an aging population will constrain labor force growth, potentially limiting wage increases and overall economic activity.
Lawmakers have about two months to craft the next budget, with tough decisions ahead.
Some legislators have suggested canceling programs that rely on uncertain federal funding, while others are looking at spending reductions across agencies. Discussions over whether to tap into the state’s $3.5 billion rainy day fund could also intensify as policymakers seek ways to plug budget holes.
Despite the growing shortfall, Walz urged lawmakers to avoid waiting on federal action before crafting solutions for Minnesota.
“We are not going to chase the chaos,” he said.

MinnPost contributed to this article.