Minnesota's budget surplus remains at an estimated $2.4 billion, according to the latest state forecast released by Minnesota Management and Budget (MMB). However, officials are warning of a potential deficit on the horizon.

The October biennium report from MMB showed increased revenue adjustments and slightly lower spending, which led to a recalculated projected surplus of approximately $2.4 billion, an increase from the previous estimate of nearly $1.6 billion in May.

The forecast predicts that if unspent by state lawmakers, the state would have a $2.4 billion surplus at the end of the 2024-25 biennium. However, looking ahead to the 2026-27 biennium, the forecast warns of a possible budget imbalance that could potentially wipe out most of the surplus, leaving only $82 million remaining.

Higher projected spending in health and human services and education are cited as key factors contributing to the potential budget imbalance despite increasing revenue. These sectors could create a budgetary challenge for the state.

The state achieved a record surplus of $17.5 billion in February this year when the legislature was in session. However, a significant portion of that surplus has already been used due to laws passed during this year's session. The Minnesota House, Senate, and governor's office were under Democratic-Farmer-Labor (DFL) control for the second time in 31 years, and the first time since 2013-14. Several major bills were approved and enacted, including increased education spending, universal free school meals, funding to combat homelessness and food insecurity, and the creation of a paid family and medical leave program.

The latest forecast highlights that certain initiatives, such as the school meals program, have incurred higher costs than anticipated due to increased participation. Other factors contributing to the budgetary challenge include special education transportation, long-term care waiver services, and changing estimates in federal share programs like medical assistance programs.

Despite the projected imbalance in the 2026-27 biennium, MMB Commissioner Erin Campbell assures that the state is currently more stable and experiencing less volatility. However, there is a need for budget constraints to address rising costs of critical programs.

Governor Tim Walz emphasized the need for a measured approach going into next year's legislative session, stating that a bonding bill remains a priority but adding that tax cuts for high-income individuals will not be considered. The governor and lawmakers will monitor future projections released by MMB to adapt their strategies accordingly.

In response to the forecast, Republican leaders voiced their concerns. House Minority Leader Lisa Demuth stated that the DFL is leading the state toward a fiscal cliff, while Senate Minority Leader Mark Johnson criticized the DFL's spending spree, which he believes burdens Minnesotans with higher taxes and costs during a time when they seek relief.

On the other hand, House Speaker Melissa Hortman and Majority Leader Jamie Long, both Democrats, saw the forecast as evidence of Democrats growing the economy in Minnesota.

Despite the challenges ahead, the state aims to prioritize critical programs and maintain a solid financial footing for the future.