Minnesota budget outlook isn't great. What now?

Yahoo

20-03-2025

Minnesota Capitol. Photo courtesy of House Public Information Services.
For those of us who support Minnesota's efforts to fund robust public services, it's been a rough few months. The February forecast dimmed what was already a fairly bleak state budget outlook, as rapid growth in costs are projected to outpace revenues for the foreseeable future. Add to that the looming threat of federal cuts and it feels a little like shoveling sand against a tsunami.
But Minnesota has a substantial role to play in both combatting President Donald Trump's anti-public agenda and correcting our own fiscal trajectory. Here are 5 reflections for Minnesotans thinking about the future of public funding.
The political rhetoric about the state budget is bad right now. We had a lot of money a few years ago and now we have less. We also have higher tax rates than most other states, which has intensified conservative accusations that the Legislature overspent in 2023. Listen to this story long enough and the world can start to feel constricting. But that narrow narrative is an intentional strategy aimed at the GOP endgame: tax breaks for the rich, and harmful cuts to essential programs like Medicaid.
We live in one of the lowest-taxed and lowest-spending nations on earth, and we have cut taxes time and again over the past 45 years. The United States raises and spends about one-third less on public goods and services than the average developed nation, and about half as much when weighted by total national consumption, as shown in the chart below. Relative to their wealth, other developed countries choose to spend much more of their collective resources to ensure that everyone has a home and the care and opportunities they need to get ahead.
Minnesota does more than most states to guarantee access to basic human needs, and we get results. That's a good thing. And our marginally higher taxes on the rich scarcely offset decades of top-heavy tax cuts at the federal level. With the country's most progressive state tax code, the idea that Minnesotans are suffering from high taxes as opposed to lacking services is emblematic of a dangerous race to the bottom that is keeping us all down.
Basic needs like affordable child care, accessible health care, and true community safety can only come from a society that is adequately funded and thoughtfully administered. That work is not done.
The latest budget projections emphasize the difficulty of maintaining important investments in general welfare; they may open up questions about delivering a high quality of service. But they should not shake our commitment to funding a caring and inclusive society through robust public investment.
As I wrote in the Star Tribune in December, the GOP is leaning heavily on a false claim that the state's swing from surplus to deficit was the result of decisions made by the DFL-controlled Legislature in 2023. The largest single contributor to our looming budget shortfall comes from long-term care programs, which are driven by a changing population and bipartisan policy decisions made over decades. Neither of which can be blamed on single party decisions.
Increased enrollment in long-term care programs is a demographic issue beyond the Legislature's control, while the growth in costs per person are rooted in the Disability Waiver Rate System — a complex set of equations used to calculate payment rates that was designed under bipartisan negotiations between 2007 and 2013. We are getting older as a society, and doctors are making more diagnoses of higher acuity conditions and disorders.
The state has raised wages for domestic care workers more recently, but that also received bipartisan support. Republicans, for their part, have lobbied hard for nursing home funding, which has risen substantially.
The 2023 Legislature could be more directly linked to rising special education costs — another deficit driver — but enrollment is rising there too. Perhaps a GOP Legislature wouldn't have raised wages for hourly school workers or offered more state aid to help cover special ed costs for school districts. But that's hardly frivolous spending.
And, of course, the great irony here is the GOP blaming the DFL for deficits that would have been twice as large if we'd enacted their ideas: Republicans proposed $12.7 billion of tax cuts out of a $17 billion surplus with over $4 billion of that ongoing. That would have put the state more than $10 billion in the hole by the end of the 2028-29 biennium.
This is not to say one side is right or wrong, but just to push back on the counterproductive narrative that looming deficits could have been easily avoided. Budgetary pressure is growing due to a state population whose age and rates of disability are climbing. That's a long-term dynamic that will shape public policy tradeoffs for decades to come. Ultimately, we need to retain and attract more young families, which has a lot to do with affordability and the cost of housing. Minnesota is making progress there but it will take time and effort.
Anyone putting forward a simple cause or solution is either misled or misleading.
Dovetailing with our budget challenge is another hot legislative topic: Fraud. Much like Republicans in the federal government, the state GOP is using recent cases of fraud to imply that the state could resolve its budget issues by simply apprehending all the thieves of public money and ending obvious inefficiencies.
Ensuring the best use of public funds is, of course, essential to maintaining a strong and stable state budget, but fraud investigation will not close this gap. Used to explain our budget shortfall, fraud becomes an intentional sleight of hand, aimed at eroding popular support for public investment and pushing more of the anti-tax, anti-public worldview that has dominated policymaking since the 1980s at least.
Republicans insisted on creating a new committee on fraud and oversight, but the reality of those hearings is vastly underwhelming compared to the scale and scope of their rhetoric. After several weeks of agency staff answering questions about basic procedure and organizational structure, Republicans called in the far-right Center for the American Experiment.
The conclusion of that hearing was not what you might expect. After sharing some dubious statistics about the cost of fraud in Minnesota, Policy Fellow Bill Glahn talked about the inflated compensation of executives at nonprofits paid to perform public services. He argued, to my surprise given the typical conservative push for privatization, that delivering services directly through state or local employees would be a more fair and effective way to administer programs than by outsourcing the task to private nonprofits.
This is a criticism I wholeheartedly agree with and have written about before. But the inefficiencies of current service delivery are not the same as fraud. Moreover, this broken public-private system of government results directly from those same anti-tax, anti-government neoliberal politics that Republicans and Democrats have pushed for decades.
If committee Republicans are sincere in their desire to root out fraud and enhance efficiency, then we might be on to something. A more consolidated system of direct public service provision could improve services and possibly even reduce expenditures. But that sort of outcome could only result from years of dedicated legislative efforts, not cheap sloganeering.
While waste and fraud aren't the primary cause of our big picture budget challenges, state lawmakers do need to think seriously about how to get the highest return for our tax dollars, and right now we are not driving a very hard bargain.
How, for example, did we agree to build and pay maintenance on a stadium that generates hundreds of millions in annual revenue and billions in accrued wealth for one family dynasty? Just this week, the Star Tribune reported about new requests for state money to fund a renovation of the Xcel Energy Center in St. Paul.
This sort of corporate giveaway is, unfortunately, something the Legislature has grown increasingly accustomed to. This session alone, lawmakers are considering spending $500 million on 'reinsurance' for health insurance companies in hopes (but with no legal guarantee) that the money will prevent premium increases. The Legislature is also weighing further expansion of a $230 million tax break for data centers owned by Amazon, Meta and other major tech firms, as well as a $14 million increase in public subsidies for questionable experiments in sustainable jet fuel.
Minnesota needs to get out of the habit of handing public dollars over to for-profit entities with vague hopes of a positive outcome and no expectation of a public return. A better approach would be to invest in direct public sector capacity and assets that produce residual returns on our investments.
Social housing is one idea floating around the Legislature that could be expanded to great effect. The concept is simple: Rather than using tax revenue to prop up a nonprofit affordable housing market, have local governments own and rent market rate housing, and use the income generated to subsidize affordable units. In Montgomery County, Maryland the housing authority has self-funded the construction of thousands of housing units with minimal public expenditure.
As interesting as this specific idea is, the broader insight — that the state can use its wealth to cultivate productive investment directly — is even more powerful. North Dakota and Alaska have both created sovereign wealth funds that kick off substantial revenue each year, which can be used to fund rebates to state residents, subsidize general fund spending, or both.
As our population grows older and our needs become more expensive, the state will need more tools to support the public programs and economic investments necessary to sustain a prosperous society. This definitely isn't the time for easy giveaways to those with the most.
Underlying all of this is an important opportunity. The state must now deliver a system that works better and more efficiently. We must figure out how to balance a growing demand for care with the need for renewed public leadership in areas like childcare, housing, and environmental justice. That challenge will force more earnest discussion of government structure and strategy than we've had in many years.
We can't kick the can much farther down the road. And for anyone frustrated with the quality and quantity of public services, that is good news.