Minnesota’s state budget has improved in the few months since the last estimate from top officials, but there are still some warning signs in the future.

The current surplus for this two-year budget cycle is $3.7 billion, which is an increase of $1.3 billion from the November budget and economic forecast, according to officials with Minnesota Management and Budget, the state’s fiscal agency. 

There is a modest surplus projected in future budget years, but Erin Campbell, commissioner of MMB, warned that the Legislature would need to act wisely in order to keep it that way. Last November, the forecast predicted a $3 billion deficit in future years. 

“There is good news in this forecast, but significant risks do remain,” Campbell said. 

That’s because state spending still outpaces the amount of revenue it’s collecting. That can lead to a deficit if it isn’t in check. There are also many unknowns that the current forecast doesn’t take into account, like the impact of tariffs, immigration policies and any federal funding cuts that would hit Minnesota.

The Trump administration on Wednesday announced it would halt nearly $260 million in Medicaid funding over concerns about fraud found in Minnesota’s social services programs. 

Campbell said if that holds up, the state would have to pick up the difference, impacting its bottom line. 

“That’s just one example of the variables that we can’t include in this forecast at this time and the real impact that it could have on the forecast,” she told reporters. “And the reality is that it wouldn’t take much to have $377 million in a positive balance end up being a negative number.”

The state is currently in the middle of a two-year spending plan approved last year. The numbers released Friday will shape conversations at the State Capitol in St. Paul about any supplemental budget items this session. 

Campbell said, at a minimum, lawmakers should consider offsetting any new spending with spending cuts.

Legislative leaders react to budget forecast

GOP House Speaker Lisa Demuth said the latest estimates put Minnesota in a position to pass what’s called tax conformity to align the state’s laws with federal tax changes. The so-called “big, beautiful bill” that Congress approved last year eliminates taxes on some overtime and tips, among other provisions. 

She and other Republicans also pointed fingers at Democrats for the current financial outlook, blaming the policies they approved when they had total control of the Capitol. 

“Savings. That’s what we need to do here. We know that structural imbalance is still an issue, as you saw in the out years. We still have a spending problem,” Demuth said. “We need to rein that in. Our work, as you heard, last year helped very much, but there’s still much more to do.”

Meanwhile, Democrats said the federal government’s actions cloud the forecast and will impact lawmakers’ ability to responsibly budget into the future. Senate DFL Majority Leader Erin Murphy said any supplemental spending would need to focus on “urgent needs” for the state, like paying for debt service if there is a borrowing package for infrastructure projects and funding ongoing State Capitol security improvements. 

Rep. Zack Stephenson, the House DFL leader, said the budget forecast comes with a huge “asterisk” not seen in other financial outlooks, warning that all of the improvement in the latest numbers would be offset by the Medicaid cuts, and other federal reductions could be coming for other programs. 

“Until Donald Trump’s retaliatory campaign against Minnesota is stopped, these surpluses are actually deficits,” Stephenson said. “The chaos and uncertainty Trump has caused will make it very challenging for legislators to make budget decisions going forward.”

The divided Legislature — a tied House and a one-seat DFL majority in the Senate — means that lawmakers will once again have to work in a bipartisan way to pass any bills this year.

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