November State Budget Forecast Projects $616M Balance

A structural deficit looms in the state budget as spending outpaces revenues in future years.

Minnesota’s budget and economic outlook faces growing uncertainty as spending outpaces revenues over the next four years. For the current biennium, the projected balance is $616 million, $1.1 billion lower than earlier estimates. Revenues are $992 million less than forecasted at the end of the 2024 legislative session, while spending is $572 million higher than had been projected. The budget reserve increased to its current total of $3.2 billion. Lawmakers will use this information during the 2025 legislative session to help develop and pass the next biennial budget.

View Minnesota Management and Budget’s complete November 2024 economic forecast document (pdf).  

Projected deficit

The structural imbalance or projected deficit for fiscal year 2028-2029 is $5.7 billion. While revenues are still projected to increase year over year, spending projections are increasing at a faster pace. Much of the growth in spending is in the health and human services (HHS) areas. The use and cost of disability services has grown over time and as Minnesota’s population ages the state is projecting costs to increase even more.

HHS spending is projected to increase by 12.8% from fiscal years 2026-27 to 2028-2029, compared to a 6.3% increase in E-12 education spending, and a 4.4% increase in property tax aids and credits. The revenue from the individual income tax and general sales tax are expected to increase 8.5% and 6.3% respectively over that same time frame.

Inflation factor

During the next session, lawmakers are expected to continue discussions on how inflation is factored into these economic forecasts. In February of 2023, the Legislature passed a law that factored in discretionary inflation. Without that law change, the projected balance for the current biennium would be $1.5 billion and the structural deficit in the out biennium would be $3.5 billion.

What’s next

Legislative leaders and the Gov. Tim Walz spoke about the new economic forecast, with Republicans saying that the forecast showed the need to reduce future spending. Gov. Walz said that future spending reductions or tax increases should be on the table. However, with the $616 million balance for the upcoming biennium the Legislature may wait to address the projected imbalance until after passing a budget in 2025 to see if the long-term economic picture changes. For cities, that means it’s unlikely there will be significant changes to programs like local government aid during the upcoming legislative session.

Gov. Walz will release his budget in January. By the end of February, Minnesota Management and Budget will release an updated forecast, which legislative leaders will use to develop their budget bill proposals.

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