Minnesota economic forecast projects $1.1 billion less in 2026-27, possible deficit ahead

A new economic forecast for the Minnesota state budget projects a $616 million surplus through the 2026-27 biennium budget. This is a decrease of $1.1 billion compared to previous estimates.

Legislators were initially expected to have $1.7 billion during the 2026-27 biennium. The $1.1 billion shortcoming is causing concerns about the state’s financial spending and long-term stability.

“While the budget is stable in this biennium, it’s obvious that spending reductions are needed to prevent a deficit down the road,” Minnesota House Republican Leader Lisa Demuth, R-Cold Spring, said in a release.

Demuth’s release told state agencies to be on “notice,” and it cites a desire to keep governmental staffing within reason.

“The times of automatic (agency) budget increases and dramatic government employee growth are over, and we expect you to join us in working to find savings and root out waste and fraud,” Demuth said.

Wednesday’s report states inflation could play a role in Minnesota’s budgeting future. If matters continue, there could be a $5.1 billion deficit in the 2028-29 biennium, according to the report. This forecast comes as the Consumer Price Index is expected to be at 2.2% in 2026 and 2.7% in 2027.

Inflation would account for roughly $2.2 billion of the 28-29 biennium difference, forcing the state into a deficit. The report states spending beyond revenue could contribute roughly $3.5 billion.

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Minnesota DFLers say while there’s some unsurety, legislators have experience in creating budgets.

“While the long-term budget forecast shows reasons for concern, it is the job of the governor and legislature over the next two years to balance in the near-term and prepare for the long-term,” House DFL Leader Melissa Hortman wrote in a statement.

Hortman said the DFL party will continue its commitment to Minnesota’s workers, students and elderly populations.

“We will do what we always have done, which is to make responsible and sustainable commitments to Minnesotans, from preschoolers to nursing home residents.”

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On Wednesday, Minnesota Sen. Heather Gustafson, DFL-Vadnais Heights, announced her intentions to introduce a bill to create an Office of Inspector General.

In a release, Gustafson said the independent office would work to conduct audits on both public and private organizations receiving state dollars. The proposed office would make sure state agencies meet ethical and financial standards by investigating fraud and corruption while exploring avenues to reduce waste.

“With the Office of Inspector General in place, Minnesota would advance good governance and bolster our fiscal responsibility,” Gustafson wrote in a release. “It’s time to take meaningful action this session to safeguard our shared resources and secure trust in public institutions.”

Corey Schmidt covers politics and courts for the St. Cloud Times. He can be reached at cschmidt@gannett.com. 

This article originally appeared on St. Cloud Times: Minnesota legislators grapple with balancing a potential deficit

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