Minnesota’s latest budget forecast reveals a troubling pattern that has become all too common in state governance: celebrating today’s surplus while ignoring tomorrow’s deficit. The recent report from the Minnesota Office of Management and Budget shows a $2.465 billion surplus for the current biennium alongside a projected $2.96 billion deficit for 2028-29. This isn’t just an accounting curiosity—it’s a warning sign of structural problems in Minnesota’s fiscal approach that demands immediate attention.
While Governor Walz points to “responsible budgeting” as the reason for improved short-term numbers, the reality tells a different story. A $66.8 billion two-year budget that requires special legislative sessions to complete, followed by projected deficits, doesn’t reflect fiscal discipline. Instead, it demonstrates a concerning pattern of prioritizing immediate political wins over sustainable fiscal management.
The Health Care Cost Crisis Minnesota Won’t Address
The budget forecast explicitly identifies rising health care costs as a primary driver of the looming deficit. This isn’t surprising to anyone watching Minnesota’s healthcare landscape. The state’s MinnesotaCare program and Medicaid expansions, while providing valuable coverage, have created unsustainable cost trajectories that the current administration has been reluctant to reform.
When Massachusetts implemented similar expansions years ago, they quickly faced the same fiscal reality Minnesota now confronts. Their initial solution—cutting provider reimbursements—led to access problems and ultimately required tax increases. Minnesota appears headed down this same path, with healthcare consuming an ever-larger portion of the state budget without corresponding reforms to address underlying cost drivers.
The state’s refusal to implement meaningful cost containment measures, such as value-based care initiatives or administrative simplification requirements, reveals a preference for expanding benefits without addressing how to sustainably fund them. This approach creates a fiscal time bomb that will eventually require either significant tax increases or painful benefit cuts.
Economic Growth Problem That Officials Downplay
The budget forecast delicately refers to “slow economic growth” as a deficit contributor, but this understates a serious competitive disadvantage. Minnesota’s economic growth has consistently lagged neighboring states and national averages in recent years. The state’s high corporate tax rate (9.8%) and individual income tax rates (reaching 9.85%) create a challenging environment for business formation and expansion.
The Minnesota Chamber of Commerce correctly identifies this as an “economy being outpaced by other states.” This isn’t partisan rhetoric but observable reality. When Target Corporation announced 1,500 job cuts at its Minneapolis headquarters in 2023, it followed a pattern of Minnesota-based companies expanding operations in lower-tax states while maintaining minimal presence in their historical home.
South Dakota, with no corporate or individual income tax, has seen its GDP grow at nearly twice Minnesota’s rate over the past five years. Wisconsin’s manufacturing sector has outperformed Minnesota’s since implementing targeted tax reforms in 2019. These aren’t coincidences but direct consequences of policy choices that the current administration dismisses.
The Federal Funding Cliff No One’s Prepared For
Perhaps most concerning in the forecast is the acknowledgment that 35% of Minnesota’s budget relies on federal grants—many of which are set to expire or decrease significantly. The pandemic-era funding that artificially propped up state budgets nationwide is ending, creating a fiscal cliff that Minnesota has made insufficient preparations to address.
When federal education funding through the Elementary and Secondary School Emergency Relief (ESSER) program expires in September 2024, Minnesota schools will face a $1.3 billion funding gap. Rather than preparing districts for this reality through gradual adjustments, the state has allowed schools to become dependent on these temporary funds for ongoing operational expenses.
Similarly, enhanced federal Medicaid matching funds are phasing out, which will require Minnesota to cover a larger percentage of its Medicaid costs. The state’s budget projections acknowledge this challenge but offer no concrete strategy beyond hoping for continued federal generosity or future surpluses.
Alternative Viewpoints: The Case for Optimism
Supporters of the current administration’s approach point to several factors that could mitigate these concerns. They note that Minnesota’s reserves remain strong at $3.77 billion, providing a buffer against economic downturns. They also highlight that the projected deficit for 2028-29 improved from earlier forecasts, which had anticipated a $6 billion shortfall.
Some economists argue that Minnesota’s investments in education, infrastructure, and healthcare will yield long-term economic benefits that could generate additional revenue. The state’s well-educated workforce and quality of life continue to attract certain industries, particularly in healthcare, technology, and advanced manufacturing.
These points have merit but fail to address the fundamental structural imbalance between Minnesota’s spending commitments and revenue projections. Strong reserves can cushion temporary shocks but cannot solve persistent deficits. An improved deficit projection still remains a deficit that must eventually be addressed.
A Path Forward Requires Difficult Choices
Minnesota can address its looming fiscal challenges, but doing so requires acknowledging difficult realities. First, meaningful healthcare cost containment must become a priority. This means moving beyond expanding coverage to addressing the underlying cost drivers through payment reform, administrative simplification, and greater price transparency.
Second, the state must critically examine its tax structure to improve competitiveness while maintaining necessary revenue. This doesn’t necessarily mean adopting the approach of zero-tax states, but rather creating a more balanced tax environment that doesn’t discourage business investment and high-skill workforce retention.
Finally, the state needs to prepare for the federal funding cliff by helping agencies and schools develop transition plans that gradually reduce dependence on temporary federal dollars. This requires honest communication about future constraints rather than perpetuating the illusion that current spending levels can be maintained indefinitely.
The experience of states like Colorado and Virginia demonstrates that bipartisan fiscal reforms are possible when the focus shifts from ideological battles to practical problem-solving. Both states implemented structural reforms to their budgeting processes that forced longer-term planning and created mechanisms to address projected deficits before they materialized.
Conclusion: Time for Fiscal Reality
Minnesota’s budget forecast should serve as a wake-up call rather than an opportunity for political spin. The projected $2.96 billion deficit for 2028-29 isn’t a distant problem that can be ignored—it’s the result of decisions being made today that create unsustainable fiscal trajectories.
Responsible governance requires addressing these challenges proactively rather than waiting for a crisis. Minnesota has the resources, talent, and capacity to create a sustainable fiscal future, but only if it moves beyond short-term political considerations to embrace necessary reforms.
The question isn’t whether Minnesota can afford to make difficult fiscal choices now—it’s whether it can afford not to. The longer structural imbalances persist, the more painful the eventual corrections will become. Minnesota’s economic future depends on having the courage to face fiscal reality today.
