Capitol Watch—the budget!

Cut the crap on the state budget!

Analysis by the Center of the American Experiment – March 9, 2025

Apologies for the crude language but there’s no better way to describe the messages from the capitol reacting to the new budget forecast. The state budget office announced Thursday that the deficit in the 2028-29 biennium will grow from $5.1 billion to almost $6 billion. There will be less money available in the 2026-27 biennium as well. Predictably, Gov. Tim Walz and Democratic leaders blamed the increase in the deficit on Donald Trump, with Walz declaring, “There is a storm at the federal level, and that storm is Donald Trump. That’s the thing that’s changed between November and today’s numbers.” Give me a break! Nothing Trump has done in his first month in office is affecting the Minnesota state budget.

The Republican message of “Democrats turned a $17 billion surplus into a $6 billion deficit” is more on point but frankly a little stale. Perhaps that simple message is enough for political communications, but we have higher expectations here at Minnesota’s Think Tank.

Yes, Democrats and Gov. Walz squandered a $17 billion surplus in 2023. Yes, they also raised taxes an additional $9 billion. But the economists at Center of the American Experiment have been warning us for years to look beyond those talking points to see the real problem is structural and ongoing. Minnesota is spending more money than we are taking in each year.

Here is the most important slide from Minnesota Management and Budget’s presentation this week:

Capitol Watch

This chart shows state revenues growing 2.6 percent while spending grows 4.7 percent. This is unsustainable and the real cause of the budget deficit in 2028-29. It’s that simple. And Walz and his allies in the trifecta need to own the fact that they exacerbated our spending problems during the 2023 session. The trifecta government made very specific changes to several areas of the budget that were already growing too fast. We sounded the warning on this spending during our 2023 Off the Cliff tour.

Here are a few slides from that tour:

Capitol Watch

The 2023 trifecta government grew the size and scope of state government beyond our ability to pay by adding new employees in every state agency and creating several new bureaucracies to administer new programs like paid family leave and marijuana legalization.

Capitol Watch

They also increased spending on human services and welfare 46 percent over the previous budget. We called that growth unsustainable and predicted it would lead to future budget deficits. Next, we warned about changes to K-12 spending:

Capitol Watch

Tying the general education formula to inflation puts that spending on autopilot and takes it out of the hands of legislators. We warned in 2023 that human services and K-12 education spending now account for 70 percent of the state budget—and both are increasing, automatically, at an unsustainable rate.

Capitol Watch

Everyone agrees that welfare spending is the biggest factor in the growth of the deficit. As outlined in a recent presentation to the House Ways and Means Committee and an upcoming report on the state budget, economist Martha Njolomole highlights the specific things the trifecta government did in 2023 that are contributing to the increase in welfare spending:

• Raised reimbursement rates for providers and caretakers.
• Eliminated cost-sharing including for high-income parents of disabled children who enroll in Medicaid under the Tax Equity and Fiscal Responsibility Act (TEFRA) option.
• Reinstated comprehensive dental coverage for adults.
• Provided continuous Medicaid eligibility (ergo coverage) for children up to 21 years old. Federal law passed in 2022 requires states to provide continuous coverage for children up to 19. Minnesota law goes beyond that.
• Provided continuous eligibility (ergo coverage) to children who qualify for Medicaid up until they reach age 6.
• Added $1 billion in new funding for childcare assistance to expand eligibility for childcare assistance to foster caregivers and relative caregivers.
• Dedicated over $100 million in new funds to cash assistance programs by increasing benefits and loosening eligibility criteria, among other things.
• Allowed undocumented immigrants to enroll in MinnesotaCare.

This is the list of spending items to roll back to solve the looming budget deficit. Surely the state can survive with welfare spending at 2022 levels. I don’t remember stories of people dying in the streets or grandma being kicked out of the nursing home.

Don’t forget about fraud

Capitol Watch

The other place to look for budget savings is the elimination of fraud. American Experiment’s Scandal Tracker is up to $611 million in documented fraud in state programs.

Maybe liberals would understand this better if we used language they are more used to like “systemic racism.” Tell them the Minnesota state budget is suffering from years of “systemic unbalance.”