November budget forecast: Down, up, then down again

Minnesota Management and Budget (MMB) released its November forecast this morning, providing an updated look at the state’s fiscal situation in the current biennium as well as the 2028-29 biennium. The forecast shows both good and bad news.

The good news is that the 2024-25 biennium ended with a general fund balance that was $941 million higher than estimated at the end of the legislative session in June. This balance was driven by higher-than-expected tax revenues, and the $941 million will be carried over into the current biennium. Additionally, the budgetary balance at the end of the 2026-27 biennium is now projected to be $2.4 billion, up from $1.8 billion in the June forecast. Budgetary reserves remain strong and are projected to be $3.4 billion by the end of the biennium, around $250 million more than the previous estimate.

On the other hand, Minnesota is projected to spend roughly $5.4 billion more than it will earn in revenue during the next (2028-29) biennium (also called a structural deficit). Even with the projected $2.4 billion surplus carried over from the 2026-27 biennium, the general fund will end the 2028-29 biennium with a negative balance of -$2.9 billion. MMB has incorporated the impact of the federal tax bill into the forecast, which was passed earlier in July of this year. The biggest impact on the state’s budget will be in health care, with MMB projecting that federal funding changes to Medical Assistance and SNAP will cost the state an additional $222 million for 2026-27 and $480 million for 2028-29.

The November forecast also highlighted changes in the state economy. There was strong job growth in the state in 2024, during which 25,000 jobs were created. In 2025, however, Minnesota employment is projected to shrink by 700 jobs, and by 400 jobs in 2026. This trend reverses in 2028-29, where the state is projected to add 9,000 jobs each of those years. Minnesota’s unemployment rate increased to 3.6%, up from 3.0% in February, which is still well below the national unemployment rate of 4.3%.

Meanwhile, wage growth in the state is projected to continue outpacing inflation between now and 2029. While inflation has come down since its peak in 2022, tariffs and other macroeconomic factors could bring inflation back up in the coming years.

With all of this in mind, here are some items to look for during this biennium from an economic and budgetary perspective:

• Federal Reserve interest rates – How much these come down will play a role in the size of the next bonding bill. The forecast assumes that the Federal Reserve will reduce the rate by 25 basis points in December, and then halt cuts until mid-2026.
• The impact of the federal tax bill – While the forecast provides an estimate, it can be hard to know the real impact of higher premiums or the loss of coverage, and how it affects the state budget.
• Baseline spending from the general fund is expected to grow from $68.4 billion in 2026-27 to $72.2 billion in 2028-29. It remains to be seen how much or whether the Legislature reduces spending in the next two years, given the persistent and deep deficit in 2028-29.

The February 2026 forecast is the next full forecast and will be released in early March 2026.