The DFL deficit
In February 2023, Minnesota Management & Budget (MMB) forecast a state government budget surplus of $17 billion for the 2024-2025 biennium. In March this year, we learned that MMB was now forecasting a deficit for the 2028-2029 biennium of $4.0 billion, or $6.0 billion if you account for inflation. How did the state’s finances deteriorate so badly so quickly?
From “trifecta” to deficit
Figure 1 shows actual state government spending (“Total Expenditures & Transfers”) and revenues (“Subtotal Current Resources”) from 2018 to 2024. The budget was in balance, as required by the state constitution, in the first three years, with a surplus opening in 2021 of $3.7 billion, increasing to $5.9 billion in 2022. In February 2023, revenues were forecast to outpace spending every year to 2027 by a cumulative total of $13.7 billion.
Figure 1: Minnesota state government spending and revenues, billions
With that forecast in their back pocket, the “historic” DFL trifecta embarked on an orgy of spending in the 2023 session. As revenues flatlined, state spending rose by 50.9% in one year, by $12.6 billion, from $24.7 billion in 2022 to $37.2 billion in 2023. In 2024, revenues flatlined again and spending edged down to $35.3 billion, yielding a deficit of $4.7 billion.
With revenues flat since 2022, there isn’t much to say about them. The deterioration in the state’s fiscal position is down to the explosion on the spending side.
Table 1 breaks down the increase in spending of $10.6 billion from 2022 to 2024 by area. While spending on “Capital Projects & Grants” increased by 580.1%, this accounts for a relatively small dollar amount. The main drivers of the spending increase were “Economic Development, Energy, Ag and Housing” which accounted for 17.2% of the increase in spending, “E-12 Education” which accounted for 19.0%, and “Health & Human Services” which accounted for 28.4%.
Table 1: General Fund spending by area, billions
From deficit to more deficit
These spending increases are set to continue. MMB’s February 2025 forecast had spending up by $1.2 billion from 2024 to 2029. As Table 2 shows, a further hike in Health & Human Services spending accounts for a vast chunk of that.
Table 2: General Fund spending by area, billions
This shows up in the budget forecast, as Figure 2 shows. After flatlining for a couple of years, revenues are forecast to resume their growth, rising from $30.6 billion in 2024 to $34.5 billion in 2029. At the same time, spending is forecast to increase from $35.3 billion to $37.9 billion. In every year from 2024 to 2029, spending is forecast to outpace revenues for a cumulative deficit of $19.0 billion.
Figure 2: Minnesota state government spending and revenues, billions
The issue in 2026
With the breaking of the trifecta in November 2024’s elections, some action was taken in the most recent session to fix the looming budget deficit it had created. But, as Figure 3 shows, much remains to be done. Spending is still forecast to outpace revenues in every single year to 2029, for a cumulative deficit over the period 2024 to 2029 of $13.3 billion.
Figure 3: Minnesota state government spending and revenues, billions
Next year is both a budget year at the capitol and an election year. The former is likely to dominate the latter. So it should.
