Minnesota is facing a worsening economic situation as new state budget projections paint a troubling picture of the state’s finances.
According to Minnesota Management and Budget (MMB), the state’s projected surplus for the next two-year budget is $456 million, a steep departure from the $616 million budget surplus that was projected last November.
In addition to the $160 million shift, MMB has projected that the state will face a $5.995 billion deficit in fiscal years 2028-29. Back in November, the deficit for those fiscal years was projected to be roughly $5.1 billion.
Minnesota had record surplus in 2023
In February of 2023, Minnesota had a projected budget surplus of roughly $17.5 billion. However, Democrats in control of the Minnesota Legislature and the state governorship embarked on an unprecedented spending spree when they crafted the state’s two-year budget in 2023.
In short, Democrats passed new programs and spent a significant amount of money which ballooned the state’s two-year budget to a record $72 billion amount. For context, the state’s prior two-year budget, crafted in 2021, was just over $51 billion.
This roughly 40% increase in spending was paid for with new taxes, one-time federal money, and by tapping into the projected surplus funds.
Now, the record surplus is gone and state legislators will have to make many tough decisions in the next few months as they craft Minnesota’s next two-year budget.
Walz has proposed $66 billion budget for fiscal years 2026-27
Earlier this year, Gov. Tim Walz released his recommendations for the upcoming two-year budget cycle (FY 2026-27) which runs from July 1, 2025 to July 1, 2027.
In his recommendations, the governor proposed that the state enact a two-year budget that spends $66 billion. Walz’s budget would increase the number of taxable services in Minnesota, make several budget cuts, and cut the sales tax by 0.075%. The governor claimed his proposal would leave Minnesota with a $2.1 billion surplus in FY 2026-27 and $355 million in FY 2028-29.
Republicans slammed Walz’s recommendations.
In a statement responding to the governor’s budget proposal, Speaker Lisa Demuth, R-Cold Spring, said “A budget that raises taxes on Minnesotans and cuts funding for long term care is not a budget that values the people of Minnesota.”
Republican officials react to new budget projections
“House Republicans warned that the out-of-control spending increases and tax hikes passed by the Democrat trifecta would wreak havoc on our state budget,” said House Speaker Lisa Demuth, R-Cold Spring. “While revenue continues to grow, spending is growing even faster. 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. House Republicans are ready to work toward a responsible balanced budget that funds our priorities and protects vulnerable Minnesotans while addressing the fiscal disaster Democrats have created,” added Demuth.
Senate Minority Leader Mark Johnson, R-East Grand Forks, said, “The forecast shows one thing: Minnesota Democrats broke Minnesota’s budget. They spent an entire $18 billion surplus, raised taxes by $10 billion and we [are] now facing a $6 billion future deficit. Minnesotans sent a clear message this year—they want the out-of-control spending from the Democrats to stop and for their budgets to be put first.
“Minnesota Democrats will be quick to blame Washington, D.C., but there is no one to blame but themselves. They squandered the surplus, they raised taxes, and they wasted half a billion dollars on fraud. This is simply a Democrat Deficit,” added Johnson.
Gov. Walz and DFL leaders criticize President Trump
Walz and DFL leaders in the Minnesota Senate and House reacted to the new state budget forecast by criticizing President Donald Trump.
“But what’s clear in this budget picture, and you just heard it, is there’s a storm at the federal level, and that storm is Donald Trump,” said Walz at a press conference about the budget forecast. “That’s the thing that’s changed between November and today’s numbers.”
In a statement about the budget forecast, House Speaker Emerita Melissa Hortman, DFL-Brooklyn Park, said “Minnesota is already starting to see the negative impacts of Donald Trump’s chaos, cruelty, and incompetence, with inflation, tariffs, and uncertainty taking their toll on our economy and state budget. And the worst is yet to come.”
According to MMB, the state has $3.1 billion in budget reserves that are designed to be used in case of a significant, unexpected decrease in state revenue. Additionally, the current biennium, which ends on June 30, 2025, has a projected surplus of $3.7 billion.
“Thanks to responsible DFL budgeting, the November forecast showed a $3.7 billion surplus in the current biennium, and today’s forecast shows a $456 million positive balance in the upcoming budget cycle. The state continues to have our highest budget reserve fund ever,” added Hortman.
Speaking at the same press event attended by Walz, Senate Majority Leader Erin Murphy, DFL-St. Paul, said “In Minnesota, [Trump’s] recklessness has shrunk our state surplus by $160 million.”
Despite the DFL criticisms of Trump, MMB had already projected in November of 2024 that the state was facing a $5.1 billion budget deficit in the coming years. That projection was made before Trump took office for his second term as president.
Luke Sprinkel
Luke Sprinkel previously worked as a Legislative Assistant at the Minnesota House of Representatives. He grew up as a Missionary Kid (MK) living in England, Thailand, Tanzania, and the Middle East. Luke graduated from Regent University in 2018.
