Minnesota's looming budget deficit widens under new forecast despite cuts

ST. PAUL, Minn. (FOX 9) - Despite significant cuts during the 2025 legislative session, the Minnesota budget office is projecting an increasing budget shortfall for the state during its upcoming biennium.

Shortfall projected to increase by 2028-29

By the numbers:

Under a budget forecast being released by Minnesota Management and Budget (MMB), the budget shortfall for the 2028-29 budget cycle rose to nearly $3 billion. Analysts blame several factors, including rising healthcare costs and a weakening economy, for the increased projection.

At the same time, for the next budget cycle, the budget office is forecasting an increased surplus of $2.4 billion, which is $579 million more than previous estimates.

What they're saying:

Budget officials explained the increased deficit forecast during a presentation on Thursday. The presentation pointed to rising costs in three key areas.

Healthcare costs: Officials are projecting a $1.4 billion increase in healthcare costs in the upcoming budget cycle and a $1.3 billion increase in the 2028-29 cycle compared to previous estimates. Officials said 90 percent of the increase stems from changes to the state's medical assistance program. Officials say they are seeing more patients, higher costs per patient, and higher-than-expected rates paid to managed care organizations – which is the single largest factor.
Education: Projected costs for education have risen by $115 million for the next budget cycle and $288 million for the 2028-29 cycle since the end of the legislative session. Officials said the increase is primarily because of higher-than-expected costs for special education and staff salaries.
Property tax refunds: The state is projecting refunds that are $116 million higher than expected for the 2028-29 budget cycle.

One factor the budget officials did not blame for the looming shortfall was fraud. Fraud has been a hot topic in recent days as President Trump has cited major fraud cases in Minnesota as a driving factor behind an immigration enforcement operation in Minnesota targeting Somalis. Between three major fraud cases, Feeding Our Future, housing stabilization, and autism programs, the schemes have pocketed hundreds of millions of dollars.

Despite that, Minnesota Management and Budget Commissioner Erin Campbell said fraud isn't a major factor in the rising costs for health and human services.

"The health care costs that we see rising are largely driven by medical assistance and that is on trend with what we are seeing in a number of other states and a number of other markets," said Campbell. "There's also the increase in long-term care waivers. That is a trend that we've seen over time and talked a lot about in the past. So, in terms of what's driving the increase in this forecast, I would not attribute it to fraud."

Campbell also pointed out the budget office doesn't forecast for fraud.

Officials react

What they're saying:

Gov. Tim Walz released the following statement on the latest budget forecast. The governor is also expected to speak during the forecast presentation at 12 p.m. central. You can watch that in the player above.

In his statement, the governor championed the state's ability to respond to uncertainty at the federal level.

Gov. Walz statement:

"Despite the President’s tariffs and destabilization of health care costs, Minnesota’s annual budget forecast has improved in both the short and long term thanks to the responsible budgeting we’ve done in Minnesota.

"Today’s snapshot does show uncertainty. I don’t think that’s any surprise to Minnesotans who have seen impacts on their own family budgets: It’s no surprise to anyone who has looked at their health care premiums for next year. It’s no surprise to anyone who has gone out to buy anything from a new car to a cup of coffee and seen a new tariff reflected on their bill.

"But in Minnesota, we know how to balance a budget. It’s what we’ve done for the last seven years, and it’s what we’ll continue to do. We’re standing on a solid foundation, and we have the tools to continue managing a budget that makes Minnesota a great place to live."

Rep. Demuth statement

Minnesota House Speaker Lisa Demuth also issued the following statement, blaming the deficit on overspending by Democrats when they had full control of the legislature before this past session:

"With this forecast, we’re still seeing the negative effects of massive overspending and overregulation by one-party Democrat control. Without House Republicans fighting for spending cuts last session, the deficit would have been much worse. We did a great job cutting state spending this year, but the forecast shows there’s more work to be done. We’ve seen scandal after scandal of fraud in our social services programs on this administration’s watch. The bottom line is that we have both a spending problem and a fraud problem, and we will be addressing those going forward."

Lawmakers cut spending; close gap

Local perspective:

The $3 billion projection is actually a decrease from the last forecast by the budget office last March, when the office was projecting a $6 billion shortfall in 2028-29. At that time, the department blamed increased spending, primarily due to inflation, outpacing revenue. The forecast projected revenue to grow at 2.3% annually but spending to grow at a 4.7% pace annually.

The backstory:

This year, the Minnesota Legislature approved a $66 billion budget during a June special session. The budget was a significant cut from the previous biennial budget passed in 2023, which came with a $72 billion price tag.

Republicans celebrated the cuts, with House Speaker Lisa Demuth saying: "We are not uncaring, we are looking out for the best interests of Minnesotans and being responsible with taxpayer dollars."

With the cuts, the new shortfall for the 2028-29 budget fell to $1.1 billion. However, that projection didn't take into account changes at the federal level under H.R. 1, the omnibus bill dubbed the "One, Big, Beautiful Bill" by President Trump, that brought significant cuts.

At the same time, Gov. Walz fretted over the downstream impact Minnesota could face from wide-ranging cuts at the federal level from the then-pending omnibus bill.

"This is four times in a row of balanced budget growth in Minnesota, but with a recognition over the horizon, if this monstrosity or atrocity, I think, as Elon Musk put it, is able to pass, it will have catastrophic effects," Walz told media members in June.