ST PAUL, Minn. — Minnesota's budget surplus is bigger than people thought just a few months ago. The state's fiscal experts now predict a $3.7 billion surplus for the current two-year cycle, which ends 17 months from now.
That's up from the $2.4 billion surplus prediction in the November forecast. That upgraded figure is a result of a rosier long-term economic outlook and tax revenues outpacing initial expectations.
"Minnesota remains on very sound fiscal footing and projected growth in the national economy and the state revenues picture is cause for celebration," Minnesota Management and Budget Commissioner Erin Campbell told reporters.
That being said, Campbell urged lawmakers to take a cautious approach to spending in the coming months.
"In order to protect the investments that are made in programs that serve Minnesotans, it will be important that policymakers exercise caution in enacting additional ongoing spending this legislative session," Campbell remarked.
That's because the long-term forecast is for the surplus to fall to $2.2 billion in FY 2026-2027, the two-year budget cycle that begins July 1, 2025. During that period, MMB is predicting the state will take in less money than it spends, something the finance experts call a "structural imbalance."
All of the forecast numbers are a snapshot in time, assuming no new spending bills or tax increases between now and June 30, 2025. And while lawmakers passed all the major budget bills in 2023, they'll be pressed to do more spending in 2024.
Every dollar of new spending in the current cycle will lower the current biennium's surplus and, in turn, cut into the next two-year budget's bottom line. Higher demand for state services could also take a bite out of that surplus.
That has led Republicans to refer to the long-term forecast as a "looming deficit" caused by Democrats.
"So, despite a continued growing economy there still isn’t enough tax revenue to meet the DFL’s spending demands," House Minority Leader Lisa Demuth of Cold Spring told reporters.
"This goes to show we have a spending problem in Minnesota, not a revenue problem."
Gov. Tim Walz defended the spending Democrats did in 2023, asserting those decisions are already being reflected in the stronger economy.
"Our forecast is good news. Our economy is humming along," Walz told reporters.
"We made critical investments in our budget last year to grow our economy, lower costs for middle class family -- from tax cuts, free school meals, to investments in our workforce and career technical education."
Democrats say they're not panicked over that structural imbalance because the out-year forecast includes, for the first time ever, the impact of inflation. The 2026-2027 forecast assumes $842 million of the surplus will be eaten by inflation.
The state also has nearly $3 billion in reserve funds, essentially a rainy-day savings account that doesn't show up in the forecast.
"We have surpluses as far as the eye can see," House Speaker Melissa Hortman of Brooklyn Park remarked.
"Though we certainly are cognizant of that structural imbalance in the tails, our broader economic indicators remain strong and corporate profits are still soaring."
The budget forecasters refer to the surplus as a "projected surplus" because it's a prediction of how much extra cash the state will have when the budget cycle ends. In this case, they're predicting the state will have $3.7 billion left over when the current biennium ends on June 30, 2025.
Any new spending bills or tax cuts would lower that number, just as any new tax increases would raise that surplus projection. State leaders acknowledge a lot can change over the next 17 months, but they need to have an educated snapshot of the state's coffers.
Unlike the federal government, the state can't legally incur an operating deficit. The forecast serves as a guide to lawmakers to prevent them from taking the state into the red.
WATCH MORE ON KARE 11+
Download the free KARE 11+ app for Roku, Fire TV, Apple TV and other smart TV platforms to watch more from KARE 11 anytime! The KARE 11+ app includes live streams of all of KARE 11's newscasts. You'll also find on-demand replays of newscasts; the latest from KARE 11 Investigates, Breaking the News and the Land of 10,000 Stories; exclusive programs like Verify and HeartThreads; and Minnesota sports talk from our partners at Locked On Minnesota.
- Add KARE 11+ on Roku here or by searching for KARE 11 in the Roku Channel Store.
- Add KARE 11+ on Fire TV here or by searching for KARE 11 in the Amazon App Store.
- Learn more about the KARE 11+ app for Apple TV in the Apple App Store.
- Learn more about KARE 11+ here.
Watch more Minnesota politics:
Watch the latest political coverage from the Land of 10,000 Lakes in our YouTube playlist: