Minnesota's state government is spending $1.6 billion more than it collects in revenue each year on average, setting the stage for an official budget deficit by 2029, according to a new report published by the Center of the American Experiment. The analysis, titled "On Borrowed Time: Why Minnesota's Budget is Heading for a Crash," warns that the state has been spending above its means since 2023, when lawmakers used an $18 billion surplus to expand the budget by 26 percent after inflation. The fiscal imbalance has left Minnesota relying on past savings to cover current costs, a stopgap that won't last.
The numbers paint a stark picture. In 2023, the legislature raised general fund spending from $27 billion to $35 billion in a single year. By 2024, Minnesota spent $4.7 billion more than it collected in revenue. While that gap has narrowed slightly, the state is still projected to spend $1.6 billion more than it takes in each year from 2026 through 2029. Health and Human Services (HHS), which covers programs like Medicaid, has driven the majority of this growth. In 2023, HHS cost the state $8.2 billion, about $2 billion less than E-12 education. By 2026, HHS spending climbed to $12.9 billion—a more than 50 percent nominal increase in just three years. E-12 education, by contrast, grew a modest 25 percent to $12.8 billion. For the first time in state history, Minnesota spent more on Health and Human Services than on K-12 schools in 2026. By 2029, HHS is projected to exceed $14 billion and will consume over a third of the entire general fund.
The report finds that HHS's share of the budget has exploded over the past two decades. In 2000, HHS accounted for less than a quarter of all state spending, while E-12 education made up 38 percent. By 2025, HHS spending exceeded the combined total of all other state public services outside of education. According to the analysis, E-12 education and HHS together will account for three-quarters of the budget by 2029, leaving little room for everything else. The report also notes that while the 2026 legislature made some trims to HHS, those reductions are temporary and the overall upward trajectory remains untouched.
What's keeping the budget afloat right now isn't new revenue—it's old money. The state is relying on billions of dollars left unspent from previous fiscal years to close the gap between what it spends and what it collects. Excluding money deposited in the rainy day fund, the 2026–27 biennium is expected to end with a $3.1 billion balance. That leftover cash is being used to cover part of the shortfall in the 2028–29 biennium. But because the structural gap exceeds $3.1 billion, Minnesota Management and Budget projects a baseline deficit of $55 million at the end of 2029. When adjusted for inflation, that shortfall grows to $1 billion. The report explains that once the state's remaining balances are wiped out, Minnesota will face an official budget deficit beginning in 2029 and continuing each year after.
The outlook is bleak. When Minnesota Management and Budget extends its official forecast this November, the state will likely see its remaining balances eliminated and an official deficit appear in 2029 and beyond. Because lawmakers have used temporary balances to fund permanent spending increases, the deficit will be much harder to fix once it arrives. Minnesota's fiscal situation, the report concludes, will become much harder to ignore—and much more difficult to solve.