Minnesota’s projected budget surplus balloons to $3.7 billion, but fiscal pressure still looms

Just as Minnesota has experienced a warmer winter than usual, so has the state’s budget outlook warmed over the past few months.

On Thursday, Minnesota Management and Budget officials released the February budget and economic forecast showing the 2024-25 biennium is expected to end with a surplus of $3.71 billion. That’s up $1.32 billion from November projections.

As for the 2026-27 biennium, concerns about a structural imbalance persist, but the numbers have also improved there since November, with a projected biennial surplus of $2.24 billion, compared to the far more modest $82 million projected in November.

[WATCH MMB officials present the February forecast]

(Image courtesy Minnesota Management and Budget)

What changed over the winter? Tax revenue is up, especially in corporate profits, while spending estimates are largely unchanged. While the structural budgetary balance has improved, spending is still projected to exceed revenue through fiscal year 2027.

State tax revenue for the 2024-25 biennium is projected to be $61 billion and $64.8 billion in the 2026-27 biennium. Meanwhile, spending is projected at $70.53 billion in the 2024-25 biennium and $66.29 billion in the 2026-27 biennium. A beginning balance of $16.52 billion in the current biennium and $7 billion in the next (and a $3.26 billion budget reserve in each biennium) push the projected budgets into surplus territory.

[MORE: View MMB's presentation]

“We’ve got a lot of good news in this forecast,” said Commissioner Erin Campbell. “While a smaller structural imbalance is good news, that structural imbalance is something that we will have to deal with.”

Campbell added that her agency projects a bonding bill of $980 million and folded that into the forecast. Campbell and State Economist Laura Kalambokidis both warned of risk factors that could change the forecast, such as a possible federal government shutdown and international conflict.

“Our economy is humming along,” Gov. Tim Walz said. “We made critical investments in our budget last year to grow our economy and lower costs for middle-class families. … For all the doom and gloom of November, it took us three months to grow our surpluses by about a third.”

House Speaker Melissa Hortman (DFL-Brooklyn Park) concurs.

“The budget Democrats enacted during the historically productive 2023 Legislative session has laid the groundwork for long-term prosperity, a growing middle class, and a future where every Minnesotan has the opportunity to succeed and build a better life,” she said. “While our economy remains strong and corporate profits are still soaring, we know there are Minnesotans who aren’t doing as well, struggling with an economy that feels tilted against them. We will continue to prioritize cutting costs for Minnesotans in child care, housing, and health care.”

House Minority Leader Lisa Demuth (R-Cold Spring) sees the budget forecast differently.

“Today’s forecast shows Minnesota’s budget is still on the verge of a deficit thanks to Democrats’ irresponsible and unaffordable spending spree last year,” she said in a statement. “Last session, Democrats spent the entire $17.5 billion surplus and raised another $10 billion in taxes on Minnesotans to fuel a massive 40% growth in government. … We should be looking for ways to scale back wasteful spending, exercise restraint this year, and budget responsibly instead of continuing the reckless spending spree from last session.”

Both Walz and Hortman said the chief focus of the session will continue to be a bonding bill, and Senate Minority Leader Mark Johnson (R-East Grand Forks) said Republicans support that.

“We’ll hold the line on new spending and support a modest, common-sense bonding bill that doesn’t max out the taxpayer’s credit card,” he said.