Forecast Flags $5.4 Billion Deficit as Minnesota Falls Behind

Short-Term Surplus, Long-Term Deficit

Minnesota’s latest budget forecast from Minnesota Management and Budget (MMB) shows a sharp divide between the near term and the long term. According to the forecast cited by Senator Jason Rarick, the state is expecting a short-term surplus of $2.465 billion for the 2026–2027 biennium, followed by a projected $5.4 billion deficit in 2028–2029.

Rarick notes that this looming deficit is not a surprise. He says lawmakers began hearing warnings about a future shortfall several years ago, and the updated numbers now confirm that Minnesota is on track for a substantial deficit as spending continues to grow faster than revenue.

Tax Hikes and Structural Imbalance

The forecast reflects not only current spending levels but also policy decisions made in previous legislative sessions. Rarick points to roughly $10 billion in tax increases that were enacted in recent years. Those new revenues helped generate the projected surplus for 2026–2027, but, in his view, they were not enough to stabilize the state’s finances beyond that window.

As a result, the state now faces a structural imbalance: spending commitments that outpace the revenue expected in the next budget cycle. Rarick argues that this is a clear signal that Minnesota’s underlying fiscal path is unsustainable without changes in policy.

Chamber Report: Minnesota Falling Behind on Growth

Concerns about the budget are closely tied to the state’s economic performance. The Minnesota Chamber of Commerce’s 2026 Business Benchmarks Report describes Minnesota’s economy as being at a crossroads. The report shows that from 2019 to 2024, Minnesota’s rankings slipped in several key measures of growth.

Over that period, Minnesota ranked 33rd among states in overall GDP growth and 33rd in per capita income growth. The state also ranked 39th in job growth and 40th in labor force growth. In growth of real median household income, Minnesota ranked 46th. Earlier in the 2007–2019 business cycle, the state had ranked closer to the middle of the pack on many of these measures; more recently it has shifted into the back third of states in key growth indicators.

The Chamber notes that from 2014 to 2024, Minnesota’s GDP per person grew by about 1% per year, while the national average grew at roughly 1.8% annually. Over time, that slower pace allowed other states to nearly catch up, and by 2024 Minnesota’s per-person economic output was only slightly above the U.S. average. As economic growth has slowed, income growth in Minnesota has also cooled.

Workforce Growth Has Flattened

The Business Benchmarks Report identifies labor force trends as a central challenge. Minnesota’s labor force grew strongly in earlier decades, but that growth has slowed sharply. Between 2019 and 2024, the state added just 24,701 workers, an average annual labor force growth rate of about 0.2%. During the first year of the COVID-19 pandemic, nearly 90,000 people left the labor force amid accelerated retirements and other disruptions.

Even as some workers have returned, growth has not fully recovered. As of 2025, there were nearly two job openings for every job seeker in Minnesota, highlighting how tight labor conditions have become. The report attributes this to structural factors, including an aging population and lower birth rates, as well as already-high labor force participation, which leaves less room to bring new workers off the sidelines.

Residents Moving Out and Cost Pressures

Another key measurement in the Chamber’s analysis is net domestic migration—the balance between residents moving into Minnesota from other states and Minnesotans moving out. The report finds that from 2001 to 2024, nearly 123,000 more people left Minnesota for other states than moved in. The state experienced negative net domestic migration in 20 of the past 24 years.

Between 2020 and 2024 alone, Minnesota recorded a net loss of 47,930 residents to other parts of the country, ranking 41st among states during that period. While those losses began to moderate in 2023 and 2024, the long-term trend has been negative.

The Chamber notes that Minnesota’s cost of living and tax burden play a role in these patterns. The state’s cost of living ranks 19th highest in the nation, while neighboring states rank considerably lower: Iowa at 44th, North Dakota at 45th, and South Dakota at 48th. Minnesota also ranks low on overall tax competitiveness, with a high corporate tax rate and high personal income tax rates. These factors, combined with housing and child-care constraints, contribute to the challenge of retaining and attracting residents.

Health Care Spending and Fraud Concerns

Rarick also highlights rising health care spending as a strain on the state budget, particularly where fraud is involved. He points to significant fraud in health care service programs and argues that stronger eligibility verification and anti-fraud measures are needed so that funds are preserved for those who truly qualify.

Without such reforms, he warns, fraudulent activity will continue to divert resources and worsen the state’s long-term fiscal health.

Surplus Spending and Future Choices

The current deficit outlook follows what Rarick describes as a missed opportunity. Minnesota previously had a nearly $19 billion surplus. He argues that instead of using that one-time windfall to strengthen the private-sector economy and promote long-term growth, the funds were spent on expanding government, funding new agencies, and supporting nonprofits and programs he characterizes as unproven or frivolous.

Rarick also notes that when the deficit first emerged, the Walz administration suggested shifting costs from the state to counties. While that can show up as a reduction in state spending, it still leaves taxpayers paying the bill at the local level through higher property taxes and other levies.

In his view, the updated forecast shows “runaway spending, unchecked fraud, and slow economic growth hampered by billions in new taxes” combining to drive Minnesota into a $5.4 billion deficit. Looking ahead to the next legislative session, Rarick says his priorities will include reducing fraud, restraining spending, and putting Minnesotans ahead of what he describes as big government.