Latest budget forecast projects nearly $2.5 billion surplus, but red ink down the road

(UPDATED 2:42 p.m.)

Three weeks before Christmas, state budget officials provided some merriment to Minnesotans. However, Grinch-like transformations lurk.

Released Thursday, the November 2025 Budget and Economic Forecast shows the state's expected budget surplus is almost $2.47 billion for the current 2026-27 biennium. But a $2.96 billion deficit looms in the next.

Largely due to higher income tax collections, the current picture has some rosiness; however, higher health care costs and slower economic growth are keys to the projected 2028-29 biennium shortfall.

“Last month was open enrollment and all across Minnesota, in fact all across the country, working people saw the cost of their health insurance skyrocket. The single biggest takeaway from this budget forecast is that the same health care cost increases that are hitting family budgets are now impacting the state budget,” said House DFL Caucus Leader Zack Stephenson (DFL-Coon Rapids).

The forecast provides the most recent snapshot of the state's financial health. It is the first look at projections since the February 2025 forecast predicted a $456 million surplus for the current biennium — down from $616 million three months earlier — and nearly $6 billion shortfall in the 2028-29 biennium.

Officials say it’s important to remember there are risks to this forecast, including policy uncertainties at the federal level, especially those regarding trade, tariffs and immigration.

“Whether through reckless tariffs, gutting affordable health care, or shifting wealth to the ultra-rich with new tax giveaways, Donald Trump is making life harder for the middle class. It shouldn't be a surprise that the same economic failures that are hurting families are also putting pressure on Minnesota's state budget,” added House DFL Floor Leader Jamie Long (DFL-Mpls) in a statement.

House Republican Leader Harry Niska (R-Ramsey) said focusing on Trump is a way for DFLers to deflect from their “failed policies” of recent times.

“To jump from spending an $18 billion surplus, raising taxes, new mandates, billions of dollars in fraud, to try to blame that all on Trump requires staggering mental gymnastics,” he said.

The 2026 legislative session is scheduled to begin Feb. 17, and a forecast expected to be released later that month will provide updated numbers to help legislators and the governor adjust spending for the remainder of the 2026-27 biennium that ends June 30, 2027, and beyond.

“We have both a spending problem and a fraud problem, and we will be addressing it when we return to session,” said House Speaker Lisa Demuth (R-Cold Spring).

With an expected 67-all House again and the DFL having a one-seat majority in the Senate, any adjustments will likely need to be accomplished in a bipartisan way in a year when every seat is on the ballot in November 2026.

How got here

Officials said there was a nearly $5 billion surplus heading into the current biennium that began July 1, 2025, of which more than $244 million was added to the state’s budget reserve getting it to $3.77 billion, including the $350 million cash flow account, meeting the target level.

But 2026-27 biennial spending is projected to exceed revenue by about $2.2 billion, dropping the projected surplus to about $2.5 billion.

Looking ahead to 2028-29 biennium, there is expected to be a $4.5 billion difference between spending in revenue plus an anticipated $935 million needed to address inflation.     

Much of the change is health care related: average cost per person as well as the number of people being served. MMB officials say total basic care spending is projected to be about $1 billion higher per biennium than previous estimates.

E-12 spending is projected to be $115 million higher in the current biennium than initially planned and $288 million higher in the 28-29 biennium. For property tax aids and credits those numbers are $84 million and $116 million, respectively.