On Friday, Minnesota Senate Democrats unveiled their budget targets for the next two years, proposing nearly $2.5 billion in cuts over the coming four years as the state braced for a significant deficit unless legislative action is taken.
The targets from the Senate Democratic caucus indicate a projected surplus of $2.4 billion over the next two years, potentially avoiding a deficit for the subsequent biennial cycle.
However, a crucial caveat exists: these targets do not factor in inflation, which is anticipated to increase costs by about $1.1 billion in the forthcoming budget. Some economists warn of even higher inflation due to the tariffs implemented during the Trump administration.
Consequently, the actual cuts may need to be more extensive and impactful than what the targets suggest, as agencies will confront rising expenses without the necessary funds allocated to meet them. For instance, state employees—whose salaries typically represent a significant portion of many agency budgets—are likely to seek pay increases aligned with inflation.
Budget targets serve as guidelines for the legislative committees responsible for deciding how much funding is available or needs to be cut for the 2026-2027 budget. These targets can change frequently as lawmakers work on their biennial budget in the next weeks of the session. The budget must be approved by June 30, although the Legislature is set to adjourn on May 19.
Minnesota’s escalating expenses are surpassing revenue growth, leading to a suspected $6 billion budget shortfall for fiscal years 2028-2029.
To prevent the projected deficit, Senate Democrats plan to require agencies to absorb the inflationary costs, which may result in workforce reductions, program eliminations, and other cost-cutting strategies.
The proposed budget targets from Senate Democrats suggest cuts to spending in areas such as health and human services, environment, energy, and transportation, with education facing reductions in the second biennium.
In an interview, Senate Majority Leader Erin Murphy, DFL-St. Paul, stated that the budget targets are grounded in the most recent forecasts and do not consider federal-level cuts. Murphy emphasized that the state’s $3.2 billion budget reserve will help Minnesotans navigate any future federal reductions, freezes, or uncertainties impacting Minnesota.
“We’ve ensured the budget reserve is … maintained so that we have some buffer and the capacity to manage the potential impacts of Washington, D.C., which seems determined to implement deep cuts that could adversely affect families, schools, communities, and our healthcare system,” Murphy remarked.
Murphy did not provide specific details regarding how lawmakers plan to implement the cuts outlined in the budget targets.
According to the targets, the Senate Taxes Committee aims to reduce their budget by $365 million, which could be achieved through tax increases or cuts to tax subsidies or Local Government Aid under their jurisdiction.
Governor Tim Walz has proposed reducing the state’s sales tax from 6.875% to 6.8%, resulting in savings of 75 cents for every $1,000 spent on taxable goods.
Walz has also suggested taxing professional services currently exempt from sales tax, including legal, banking, brokerage, and accounting services. Together, these sales tax adjustments are projected to generate approximately $185 million over the next two years.
Murphy refrained from commenting on whether Walz’s sales tax suggestions would be incorporated into the Senate Taxes Committee’s budget target.
Significant increases in the Senate DFL’s targets consist of $100 million for the Higher Education Committee and $106 million for the Judiciary and Public Safety Committee.
Murphy indicated that a portion of the funds in higher education will be directed to the Minnesota State Grant program—essentially college financial aid—that is facing a $211 million budget deficit.
For the Judiciary and Public Safety Committee, a substantial part of the funding will be allocated to the courts and the Department of Corrections, Murphy noted.
The Minnesota House, currently divided 67-67 between Republicans and Democrats, plans to present joint budget targets early next week, according to a representative from House DFL.
There has been an ongoing discussion between Republicans and Democrats regarding how to account for inflation in state budgets. For many years, Democrats have argued for the inclusion of inflation in the projected costs for a more accurate representation of the budget outlook.
Inflation is evident in the rising expenses related to everything from construction to gasoline to fleet vehicles—and particularly in fields where government expenditure is highest: healthcare and education, with wages being a significant concern. By omitting inflationary expenses, Democrats contend that budget forecasts mislead the public regarding the government’s capacity to deliver services.
In 2023, Democrats successfully pushed through a bill mandating that inflation must be considered in both revenue and expenditure forecasts by Minnesota Management and Budget, the state’s budgeting agency.
“To develop an honest and responsible budget for Minnesota, we must have a truthful assessment of our state’s finances,” asserted Sen. John Marty, DFL-Roseville, in 2023. “Just as we rely on weather forecasts, we expect budget forecasts to present the most precise information available, enabling policymakers to make well-informed decisions for our budget. No business would base budget decisions on projections that consider inflation for revenue but ignore it for expenditures, and neither should state government.”
