Economists warn of multi‑billion dollar deficit; committee presses on Medicaid and long‑term care growth

At a Feb. 10 meeting of the Minnesota House Ways and Means Committee, economists from the Center of the American Experiment told members the state faces a projected $5,140,000,000 general‑fund shortfall in the 2028–29 biennium and a recurring structural imbalance across fiscal years in the forecast period.

“we are all aware of the budget deficit which is the $5,140,000,000 we're expecting in the 20 28, 29 biennium,” said Mathenjalomaly, an economist who introduced the presentation for the Center of the American Experiment. The presentation showed recent forecasts in which spending outpaced revenues in each year through 2029 and highlighted the rapid growth in Health and Human Services (HHS) and K‑12 education as the primary drivers.

The presenters emphasized the change that occurred in the 2023 legislative session. The material shown to the committee noted that general fund spending rose sharply between 2023 and 2024, and that per‑capita, inflation‑adjusted spending increased from about $4,800 in 2023 to over $6,000 in 2024. John Phelan, the center’s other economist, urged policy makers to close the 2028–29 gap with spending reductions rather than new taxes: “tax hikes are not an option in our opinion,” he said.

Why it matters: committee members said the numbers underline difficult choices ahead for lawmakers who must reconcile service needs, demographic change and the state’s tax structure. Presenters and several members focused discussion on Minnesota’s Medicaid program (Medical Assistance, MA), long‑term‑care waivers and forecast assumptions — all areas that drive large projected increases in HHS spending.

What the presenters showed and recommended - The Center’s slides presented a multi‑biennium structural imbalance: presenters told the committee a roughly $9,000,000,000 gap between spending and revenue in the current biennium (their slide compared roughly $71,000,000,000 in spending to $61,000,000,000 in revenues) and further structural gaps in future years. They described HHS as the fastest‑growing category in the general fund and said long‑term care waivers and long‑term care facility spending accounted for a large share of HHS growth. - The presenters noted Minnesota’s high per‑recipient spending levels in multiple Medicaid categories and cited comparisons (national data series) showing Minnesota above the median state on per‑recipient Medicaid spending and, in some categories, among the highest in the country. - Policy recommendations given to the committee included looking for spending reforms in the HHS budget and considering statutory fiscal rules. Phelan proposed a taxpayer‑bill‑of‑rights style rule (limiting growth of state spending to a defined metric such as population plus inflation, state GDP growth, or average wage growth) to restrain future spending growth.

Questions from committee members and presenters’ responses Committee members raised a series of technical and policy questions about the presenters’ assumptions and the implications of cuts: - Several members pressed for more detail on which HHS programs were driving the growth. Presenters identified Medical Assistance (MA) and, within MA, long‑term‑care waivers and long‑term‑care facility spending as major contributors, and said long‑term‑care waiver spending was rising fastest. - Representative Mahmoud Noor emphasized the human impact and the size of affected populations: “We're talking about people. We're not talking about programs and numbers,” he said, and cited figures in committee discussion that large numbers of children and adults in Minnesota participate in Medicaid. Presenters acknowledged the human stakes but repeated their central point that the growth trend will require additional resources or fiscal changes. - Members from greater Minnesota asked about regional impacts, federal matching rates and whether federal Medicaid match (the FMAP) changes were reflected in the presenters’ comparisons to neighboring states. The presenters said their comparisons used public data sources (federal and state data) and that differences in federal match rates and enrollment can change state obligations. - Members raised the role of one‑time spending, COVID effects on long‑term‑care capacity, wage increases for direct care workers, and how those choices feed into the forecast. Presenters said the February MMB baseline did not assume temporary spending would be permanent but said legislative policy choices in 2023 raised ongoing baseline spending. - Several members asked for source data for slides and forecasts; presenters said their slides drew on Minnesota Management and Budget (MMB) forecasts, U.S. Census Bureau migration data, Bureau of Economic Analysis GDP data and other public sources. Phelan said he would provide the underlying data and that a fuller report was forthcoming.

Points of contention and caveats - Members from different parties pushed back on parts of the presenters’ framing. Some lawmakers said Minnesota’s higher spending and taxes support services and a higher quality of life, and cautioned against simplifying the tradeoffs to a single fiscal prescription. Others highlighted fraud and delivery inefficiencies in some programs as additional drivers of cost growth to be investigated. - Presenters repeatedly framed the issue as a long‑term structural problem rather than a short‑term revenue shortfall: they argued revenues were growing but spending was growing faster. Committee members countered that forecasts change over time, that one‑time items and pandemic era effects complicate year‑to‑year comparisons, and that federal policy changes (including possible federal Medicaid funding changes or tariffs at the federal level) could change Minnesota’s fiscal path.

No binding action taken The committee heard the presentation and conducted a lengthy question‑and‑answer period but took no formal votes or directives on the record. Chair (presiding officer) closed the hearing by thanking the presenters and noting that the committee must now weigh difficult choices and follow up with staff and agency information.

What’s next Committee members and staff signaled follow‑up: several members requested the underlying data and forecasts from the presenters and from MMB, and lawmakers said forthcoming committee and agency hearings will examine HHS program detail, federal match assumptions, and options for addressing budget pressures in the 2026–27 and 2028–29 biennia.

Ending: The hearing recorded a clear gap between the presenters’ fiscal prescription — prioritize spending restraint — and many lawmakers’ concerns about the human and regional impact of cutting programs that serve children, older adults and people with disabilities. The committee did not adopt any immediate policy changes and will continue budget review work in the months ahead.