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Minnesota Management and Budget (MMB) released its February budget forecast on Thursday, a critical milestone as the legislature begins crafting Minnesota’s state budget for the next two fiscal years.
The forecast shows a challenging outlook for the state’s finances. The projected balance for Fiscal Year 2026-27 is $456 million, which is $160 million lower than estimates in November. The projected deficit for Fiscal Year 2028-29 has risen as well, from $5.15 billion in November to almost $6 billion. Spending is outpacing revenue, largely due to increased costs in education and health and human services (HHS). HHS spending is set to become the largest part of the state budget, driven mainly by long-term care costs.
In a Thursday press conference, MMB officials also spoke about how changing policies at the federal level — like tariffs, spending cuts, and layoffs of federal workers — are introducing uncertainty into the economic forecast.
Gov. Tim Walz, speaking on the new forecast, emphasized that his budget will focus on curbing spending growth “around the edges” without stopping or drastically cutting services. Key provisions in his budget proposal from January include a reduction in special education transportation funding, a cap on automatic year-over-year growth rates in Medicaid waivers, and an expansion of the sales tax base to services provided by investors, bankers and lawyers.
Leaders from both parties also spoke at the press conference. Democratic-Farmer-Labor (DFL) leaders said that the state is in good economic shape, and that a worsening economic outlook is due to uncertainty around federal policies. Republican leaders placed the blame for the current state of Minnesota’s budget outlook on spending by the DFL trifecta during the past biennium.
House and Senate Leaders will use this updated forecast to develop budget targets for committees, which will give committee chairs an amount they have to spend as they begin developing their omnibus budget bills. Differences between the House and Senate budget bills will need to be worked out in a conference committee.
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