Feb 29, 2024 - News

Minnesota's budget surplus grows, but threat of "structural imbalance" remains

Illustration of the Minnesota State Capitol with lines radiating from it.

Illustration: Brendan Lynch/Axios

Minnesota's projected budget surplus has grown, but state economists are still warning of financial challenges in the near future.

Why it matters: The budget update, known as the February forecast, will guide spending decisions at the State Capitol.

The big picture: Minnesota Management and Budget commissioner Erin Campbell said while the outlook has improved lawmakers should still "exercise caution" in spending this year.

State of the surplus: $3.7 billion for the two-year budget cycle that began in July.

  • That's up from November, when state economists projected Minnesota would have $2.4 billion in the bank by the end of June 2025

Yes, but: Spending "is still projected to exceed revenue" down the road, Minnesota Management and Budget says.

  • That could create a "structural imbalance" of close to $1.5 billion by the 2027 fiscal year. That's also an improvement from November, when it was pegged at $2.3 billion.

Between the lines: If lawmakers don't spend down the current surplus this year, they should still end the next biennium with extra cash.

  • Assuming current trends hold, they could spend up to $2.2 billion without going in the red, Campbell told reporters.

What they're saying: Gov. Tim Walz and DFL legislative leaders indicated they still plan to heed state economists' calls for restraint.

  • "It's great that we have [$3.7 billion] in the near term, but we have our eyes on that structural imbalance in the tails," House Speaker Melissa Hortman said.

The other side: Republican leaders expressed concern at the situation, blaming the projected structural deficit on majority Democrats' decision to spend a $17 billion surplus as part of last year's budget.

  • "Republicans have been warning since last session that this rampant spending will only hurt Minnesotans and this forecast today does prove that," House GOP Leader Lisa Demuth said.

What we're watching: The forecast could lead to a bigger capital investment package — including more cash-0nly projects.

  • DFL leaders suggested one-time spending— including an effort to pump $120 million into struggling rural EMS units — could also get a closer look given the latest numbers.

Editor's note: This story has been updated with comments for lawmakers.

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