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Minnesota forecast shows modest 2026-27 balance but growing multiyear deficit, MMB warns
Summary
Minnesota Management & Budget told the compensation council that under current law the 2026-27 biennium is projected to end with about $456 million but rising spending means a structural gap appears in subsequent years, with a projected multibillion-dollar deficit by 2029 and material uncertainty tied to federal policy and Medicaid.
Tom Carr, executive budget officer at Minnesota Management & Budget, told the State Compensation Council on March 7 that the state's February forecast shows a small positive balance for the 2026-27 biennium but a widening structural deficit in the out years.
Carr said the state would end the 2026-27 biennium with a projected balance of about $456,000,000 under current law, down from earlier estimates, while the projection for the 2028-29 biennium shows a deficit that grows to roughly $6,000,000,000 by the end of fiscal year 2029 if no policy changes are made.
The forecast changes reflect two competing forces: higher inflation than previously expected, which increases revenue collections, and faster growth in spending. Carr told the council the February forecast increased revenue estimates by roughly $640,000,000 relative to November but also raised next-biennium spending by about $790,000,000. "Inflation helps the state collect more revenues," he said, "but it also results in a higher spending forecast." He emphasized that the forecast assumes no new policy changes by the legislature.
Carr walked the council through key drivers: individual income taxes remain the largest source of revenue, sales taxes account for about one-quarter of revenue, and health and human services costs — including higher caseloads and long-term care spending — are the main source of projected spending growth. He noted weight-loss drugs accounted for roughly $167,000,000 of the increase across the forecast horizon.
Council members pressed on forecast uncertainty and the influence of federal policy. Carr said the office is not assuming federal Medicaid funding reductions in the base case but warned that any such cuts would require the state to pick up a larger share of costs. He offered to provide the council with historical revenue volatility data and reiterated that uncertainty grows in the later years of the forecast.
The forecast will be material to the council because it frames the fiscal environment for any compensation recommendations the council considers. Carr said the forecast is a planning tool and that staff would follow up with more detailed volatility and sensitivity information for members ahead of the council's next meeting.
The council asked staff to circulate supporting tables and the historical volatility materials before the next session.
