Breaking down the state budget forecast
The American flag waves in the wind atop the Capitol building in St. Paul on Feb. 26.
Tim Evans for MPR News
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On Wednesday afternoon, state economic officials will present their important forecast. It’s the one that sets parameters for lawmakers building a new budget.
We already know the top line items: the state is on track to have a smaller cushion in the next budget than was previously predicted. And Minnesota could have a nearly $6 billion deficit in the budget two years down the road if lawmakers stay on the course they’re on now.
MPR News senior politics reporter Dana Ferguson joined Minnesota Now for an update.
Use the audio player above to listen to the full conversation.
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We attempt to make transcripts for Minnesota Now available the next business day after a broadcast. When ready they will appear here.
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Audio transcript
[MUSIC PLAYING] NINA MOINI: Thank you again for tuning in to Minnesota Now. It's our top story later this hour. State economic officials will present their important forecasts. This is the one that sets parameters for lawmakers building the new budget. We already know the top line items. The state is on track to have a smaller cushion in the next big budget than was previously predicted, and Minnesota could have a nearly $6 billion deficit in the budget in two years down the road if lawmakers stay on the course they're on now.
Dana Ferguson is at the Department of Revenue right now, and she's going to join us for a moment before this presentation. Thanks for your time, Dana.
DANA FERGUSON: You're welcome, Nina.
NINA MOINI: So I know you're still digesting the report that has just come out, but what's changed since December?
DANA FERGUSON: Yeah, state economists report that the economic outlook has shifted since then, and the state is now on track to have a $456 billion surplus in the next budget. That's down $160 million from prior estimates. The bigger number that folks will be focused on today, though, $6 billion, that's the projected shortfall for the budget cycle two years down the road. If lawmakers don't add new taxes or cut state funding to education, health care, or other state programs, that's what Minnesota would be facing.
I should note, too, Nina, that economists mentioned the federal actions that could throw this whole report out of whack, but their report focuses more on what has happened, not that much on what might.
NINA MOINI: OK, that makes sense. So some of these changes from the Trump administration could trickle down. What does the report say about that?
DANA FERGUSON: Yeah, it notes that changes from the federal government introduce significant uncertainty to these projections. And that's something lawmakers are very concerned about. They will have to factor in all of that separately as they write the next budget.
NINA MOINI: OK, so does the federal timing line up with the deadlines that state lawmakers might face?
DANA FERGUSON: Not really. Federal officials have many more months to get their budget done, and they don't even have to have a balanced budget. But Minnesota does. It has to be finished sooner, ideally by the May 19th adjournment date but, at the worst, June 30th state leaders might not know if they have unexpected gaps to fill from possible federal cuts to the Medicaid program or if the tariffs that the Trump administration has imposed are still there. We've already seen some backtracking on tariffs on Canada and Mexico imposed this week, and there's going to be some guesswork involved by Minnesota budget setters.
NINA MOINI: OK, what have you heard, Dana, from some of the legislative leaders so far? Is there any alignment in what they're going to do next?
DANA FERGUSON: So far, it's been a lot of blame game back and forth about how we got here. Democrats say the Trump administration has shaken up the economy and led to the grimmer outlook. Republicans say the state is in this position because Democrats ratcheted up state spending in the last budget. And for context, Nina, the budget lawmakers passed in 2023 was the biggest Minnesota has seen at $72 billion. But if lawmakers keep state spending flat one time, funding will fall away and the next budget would be $66 billion.
NINA MOINI: OK, so are they considering sort of some further belt tightening?
DANA FERGUSON: Yeah, both parties have acknowledged that they're likely going to have to find places to cut. Governor Tim Walz has said that should come from decreasing spending on disability services and special education transportation. We haven't heard many specifics yet about where Democrats or Republicans would cut beyond GOP leaders saying they're going after waste, fraud, and abuse. But Nina, even there, it's tough for lawmakers to book actual savings from fighting fraud because no one banks on money being stolen or abused. How you account for that is really an open question. And sorry, you can hear them doing a mic test.
NINA MOINI: OK, yeah, I can hear you just fine. So has there been discussion about tapping into any like rainy day funds or emergency funds that the state may have?
DANA FERGUSON: Yes, both Democrats and Republicans have said they're reluctant to do it, but they'll consider tapping that fund. Right now, it's sitting at about $3.5 billion. That's the highest in state history. But in that discussion and many other areas, there's a lot of tough decisions ahead, Nina.
NINA MOINI: Dana, thank you. We'll let you get back to work.
DANA FERGUSON: Thank you.
NINA MOINI: All right, that's Dana Ferguson, senior politics reporter for MPR News.
Dana Ferguson is at the Department of Revenue right now, and she's going to join us for a moment before this presentation. Thanks for your time, Dana.
DANA FERGUSON: You're welcome, Nina.
NINA MOINI: So I know you're still digesting the report that has just come out, but what's changed since December?
DANA FERGUSON: Yeah, state economists report that the economic outlook has shifted since then, and the state is now on track to have a $456 billion surplus in the next budget. That's down $160 million from prior estimates. The bigger number that folks will be focused on today, though, $6 billion, that's the projected shortfall for the budget cycle two years down the road. If lawmakers don't add new taxes or cut state funding to education, health care, or other state programs, that's what Minnesota would be facing.
I should note, too, Nina, that economists mentioned the federal actions that could throw this whole report out of whack, but their report focuses more on what has happened, not that much on what might.
NINA MOINI: OK, that makes sense. So some of these changes from the Trump administration could trickle down. What does the report say about that?
DANA FERGUSON: Yeah, it notes that changes from the federal government introduce significant uncertainty to these projections. And that's something lawmakers are very concerned about. They will have to factor in all of that separately as they write the next budget.
NINA MOINI: OK, so does the federal timing line up with the deadlines that state lawmakers might face?
DANA FERGUSON: Not really. Federal officials have many more months to get their budget done, and they don't even have to have a balanced budget. But Minnesota does. It has to be finished sooner, ideally by the May 19th adjournment date but, at the worst, June 30th state leaders might not know if they have unexpected gaps to fill from possible federal cuts to the Medicaid program or if the tariffs that the Trump administration has imposed are still there. We've already seen some backtracking on tariffs on Canada and Mexico imposed this week, and there's going to be some guesswork involved by Minnesota budget setters.
NINA MOINI: OK, what have you heard, Dana, from some of the legislative leaders so far? Is there any alignment in what they're going to do next?
DANA FERGUSON: So far, it's been a lot of blame game back and forth about how we got here. Democrats say the Trump administration has shaken up the economy and led to the grimmer outlook. Republicans say the state is in this position because Democrats ratcheted up state spending in the last budget. And for context, Nina, the budget lawmakers passed in 2023 was the biggest Minnesota has seen at $72 billion. But if lawmakers keep state spending flat one time, funding will fall away and the next budget would be $66 billion.
NINA MOINI: OK, so are they considering sort of some further belt tightening?
DANA FERGUSON: Yeah, both parties have acknowledged that they're likely going to have to find places to cut. Governor Tim Walz has said that should come from decreasing spending on disability services and special education transportation. We haven't heard many specifics yet about where Democrats or Republicans would cut beyond GOP leaders saying they're going after waste, fraud, and abuse. But Nina, even there, it's tough for lawmakers to book actual savings from fighting fraud because no one banks on money being stolen or abused. How you account for that is really an open question. And sorry, you can hear them doing a mic test.
NINA MOINI: OK, yeah, I can hear you just fine. So has there been discussion about tapping into any like rainy day funds or emergency funds that the state may have?
DANA FERGUSON: Yes, both Democrats and Republicans have said they're reluctant to do it, but they'll consider tapping that fund. Right now, it's sitting at about $3.5 billion. That's the highest in state history. But in that discussion and many other areas, there's a lot of tough decisions ahead, Nina.
NINA MOINI: Dana, thank you. We'll let you get back to work.
DANA FERGUSON: Thank you.
NINA MOINI: All right, that's Dana Ferguson, senior politics reporter for MPR News.
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