Minnesota's constitution requires a balanced budget. Minnesota is also projecting a multi-billion-dollar deficit. Both of those sentences are true right now, at the same time, and the reason is a piece of accounting almost nobody outside the Capitol understands.
Once you see it, most of the shouting about the state budget resolves into something clearer — and less flattering to everyone.
The two numbers
For the 2028–29 biennium, Minnesota Management and Budget publishes:
- A budgetary balance of positive $377 million — a surplus.
- A structural deficit of $2.05 billion — $3.11 billion once you account for inflation.
Both official. Both correct. The difference is that budgetary balance counts money carried forward from the previous biennium; structural balance does not. Structural balance asks one question: in these two years, does the money coming in cover the money going out?
The Legislature's own nonpartisan fiscal staff explain why the distinction matters, and I'd frame it on the wall of every budget hearing room: "Carryforward resources are one-time and can mute the overall estimates of the budget picture, inflating a budget's closing balance."
Here is the part that should bother you regardless of party. Minnesota's constitutional balanced-budget requirement is satisfied by the budgetary test — the one that carryforward can paper over. The state measures the structural number, publishes it honestly, and is not required to do anything about it. We built a smoke detector and wired it to nothing.
What the record surplus actually was
You remember the $17.5 billion. Here is what it consisted of, from the state's own accounting: about $12.5 billion of that $17.5 billion — roughly 71 percent — was one-time carryforward money. Not a recurring revenue stream. A pile.
The 2023 Legislature spent it, and the General Fund grew 33.1 percent over the prior biennium. What happened structurally is documented precisely by the Senate's nonpartisan fiscal staff:
| Biennium | Revenue | Appropriations | Structural balance |
|---|---|---|---|
| FY 2022–23 | $60.7B | $52.2B | +$8.5B |
| FY 2024–25 | $58.8B | $69.5B | −$10.7B |
| FY 2026–27 | $63.9B | $64.4B | −$481M |
Now — and this is the part where I'm going to disappoint partisans on both sides — read what those same nonpartisan analysts wrote about their own table:
"Typically, a negative structural imbalance of 15.4 percent would be a cause for caution. However, the FY 2024-25 structural imbalance is less than the one-time balance ($12.3 billion) carried forward from the prior biennium. Additionally, the negative balance in FY 2026-27 is significantly lower, at 0.7 percent of planned biennial appropriation levels… Because this negative balance is largely one-time, its ongoing effect on future budgets is minimized."
That single paragraph contains both parties' talking points and refutes both of their exaggerations. Republicans who say the DFL blew a 15.4 percent hole in the budget are quoting a real number and omitting that it was one-time money spent on one-time things. Democrats who say there's nothing to see here are ignoring that the ongoing structural gap is real, is projected at over $2 billion for 2028–29, and grows to over $3 billion once inflation is counted.
The honest sentence is: the state spent a windfall, mostly on one-time items, and still faces a real ongoing gap that nobody has yet closed. That sentence will not fit on a yard sign, which is roughly why you haven't heard it.
The reserve — and the thing that just changed
Minnesota's rainy-day discipline is genuinely good, and credit where earned. Statute directs Management and Budget to calculate a recommended reserve based on revenue volatility. The recommendation: 5.2 percent of general fund revenues, or $3.422 billion. The account currently holds exactly that, plus a $350 million cash-flow account at its statutory target. On the strength of practices like these, Minnesota holds the top rating from all three agencies — AAA, Aaa, AAA.
But here's a development that deserved more attention than it got. The 2026 Legislature created a hospital stabilization reserve for Hennepin Health — the state's largest safety-net hospital — to be funded with up to $500 million drawn from the budget reserve, payable if the Health Department certifies the hospital is in financial distress. After that transfer, the budget reserve is projected to fall to $2.922 billion — below Management and Budget's own recommended target, and about $70 million above the statutory floor.
I want to be careful here, because this is not a scandal. Keeping the state's largest safety-net hospital open is a legitimate use of public money, and the funds remain available for reserve purposes. But it is a real trade, made quietly: the state's shock absorber is being spent partly on a shock that has already arrived. Minnesotans should know that, and the statute governing reserves says only that the reserve "should" be restored before new spending commitments — a word that is a suggestion, not a requirement.
The federal wildcard, sized honestly
Washington's 2025 budget law shifts real costs to states, and I'd rather give you the verified numbers than the scary ones. Federal funding supports roughly $31.7 billion of Minnesota's entitlement spending. The 2026 session put about $250 million into stabilizing hospitals against the fallout. Federal Medicaid administrators have deferred payments of $259 million, $91.2 million, and $199 million — and Management and Budget characterizes those as deferrals, not permanent losses, which is a distinction worth preserving before anyone puts them in a campaign ad. And if Minnesota's SNAP error rate exceeds six percent, the state picks up between 5 and 15 percent of benefit costs it does not pay today.
That last one connects directly to everything else in this series. Administrative accuracy is now a revenue item. A state that runs its programs sloppily doesn't just lose money to fraud — under the new federal rules, it gets billed for the sloppiness.
What we can do
Make the structural number binding. Minnesota already calculates it, publishes it, and ignores it. Require that any budget projecting a structural deficit above some threshold come with a written plan to close it — not a balanced-budget amendment, just an honesty requirement with a signature on it.
Turn "should" into "shall." If the reserve drops below the state's own volatility-based target, restoring it should be a first claim on the next surplus, not a hope expressed in a statute.
Separate one-time money from ongoing money on the face of every bill. The 2023 session is a case study in how a windfall becomes an argument nobody can settle, because the two kinds of dollars were never labeled distinctly enough for voters to follow.
And treat program integrity as fiscal policy. When federal law starts charging Minnesota for its own error rates, the auditors and investigators this series has been writing about stop being a cost center and become a revenue line.
Minnesota's finances are, by national standards, well run — three AAA ratings do not come cheaply. That is exactly why the state can afford to be honest about the gap it has already measured. The books are public. Somebody just has to be willing to read both of them out loud.
First the facts. Then the fix.
Sources
Minnesota's Preliminary Official Statement for its August 2026 general obligation bond sale — prepared by Minnesota Management and Budget and the only source reflecting the 2026 session — for the FY2028-29 budgetary balance (+$377 million), the post-session structural deficit (−$2.052 billion; −$3.108 billion with inflation), reserve balances and the recommended target, the hospital stabilization reserve and its projected effect on the budget reserve, federal funding totals, CMS deferral amounts, and the SNAP cost-share trigger. Minnesota Senate Counsel, Research and Fiscal Analysis, Fiscal Review, ch. 1 — the budgetary-versus-structural definitions, Charts 8a and 8b (revenues, appropriations, and structural balances by biennium), and the analysts' quoted caveat on the one-time nature of the FY2024-25 imbalance. February 2023 MMB forecast for the $17.5 billion projected balance and the $12.5 billion one-time carryforward component; 2023 session General Fund totals and the 33.1 percent increase. Minn. Stat. § 16A.152 (budget reserve and cash flow accounts, statutory floor, and the restoration language), verified at revisor.mn.gov. Bond ratings from Fitch, Moody's, and Standard & Poor's as stated in the official statement.
Rating outlooks and the dates of individual rating actions were not verified and are not asserted. The November 2025 forecast's roughly $3 billion figure was a budgetary shortfall and has been superseded; it is not the structural number used here. Corrections: campaign@madgettformn.com.