State Budget Forecast Shows Short-Term Surplus, Long-Term Deficit

December 4, 2025

On December 4, Minnesota Management and Budget (MMB) released its budget forecast for the 2026-27 biennium, showing a short-term budget surplus of $2.5 billion for the current biennium, but warned of a long-term $2.96 billion deficit for the 2028-29 biennium. 

Gov. Tim Walz and DFL leaders pointed to the Trump Administration as the reason for the long-term deficit, citing cost of living increases, higher healthcare costs, rising unemployment, and economic instability due to tariffs. 

State Republicans blamed overspending from the DFL-led 2023-24 Legislature for the projected deficit. In 2023, the Legislature used a record $17.6 billion surplus to significantly increase the state’s budget, allocating funds to new and existing state programs. Republicans also argued that increased rates of fraud among state agencies is contributing to the projected deficit. 

“This is quite different from the forecast released last Spring,” said Chad Fahning, MPP, senior manager of lobbying and legislative affairs for the MMA. “The long-term deficit will loom over decisionmakers during next year’s legislative session.”  

Last March, MMB announced a comparatively modest $456 million surplus for the current biennium, but a nearly $6 billion deficit in 2028-29. 

“Legislators have a constitutional requirement to pass a balanced state budget in odd-numbered years," Fahning said. “They do not have the same responsibility going into 2026, so there is typically more action on items that have little impact on the state budget, and are mostly policy changes. The MMA intends to advocate for legislation that will have no or minimal impact on the state budget in 2026.” 

The MMA Board of Trustees set five legislative priorities for 2026. They are: 

• Support efforts to minimize the impact of federal Medicaid changes and preserve coverage for Minnesotans. 

• Repeal the personal belief exemption for school and child-care facility immunization requirements. 

• Support evidence-based firearm safety laws. 

• Ensure clinician involvement in prior authorization reviews. 

• Expand current confidentiality protections for participation in a “wellness program” to include other healthcare professionals. 

Lawmakers reconvene in St. Paul on February 17 for the 2026 legislative session.