Gov. Tim Walz presented his budget proposal at the Department of Revenue building in St. Paul on Jan. 16, 2025. Photo by Michelle Griffith/Minnesota Reformer.
Minnesota lawmakers will start crafting a budget next month without knowing the impact of funding cuts, tax law changes, tariffs and other sweeping fiscal policies promised by the Republicans controlling the federal government.
Next week’s state budget forecast, which will tell state lawmakers how much money they have to work with for the next two-year budget, will not account for the massive spending cuts federal Republicans are targeting over the next decade, state budget director Ahne Minge said at a meeting of the Senate Finance committee Thursday.
About one-third of Minnesota’s budget comes from the federal government, and more than half of those federal dollars go to Medical Assistance, Minnesota’s Medicaid program. Federal funding also accounts for significant portions of transportation spending, child care subsidies and SNAP benefits, which help low-income households pay for food.
U.S. House Republicans passed a budget resolution Tuesday targeting $2 trillion in budget cuts over the next ten years to offset a proposed $4.5 trillion tax cut, an extension of the 2017 tax cuts whose biggest beneficiary is the wealthy. To reach the $2 trillion target, Republicans will almost certainly have to cut Medicaid spending and SNAP benefits.
As of now, those targets are merely part of a broad outline, will be subject to negotiations between the House and Senate, and have not been passed into law.
If those funding cuts come to fruition, however, the state would have to pay more for Minnesotans to maintain the same level of benefits.
But the state is already spending more money than it’s bringing in, and there’s a potential $5 billion deficit on the horizon starting in 2027, according to the most recent economic forecast.
In the current fiscal year, the federal government sent Minnesota $11.7 billion for Medicaid, $3 billion for transportation, $1.6 billion for SNAP and more than $500 million each for child care subsidies and public health.
Changes to Medicaid would have huge impact
The state is spending more money than ever on its share of the state Medicaid program, driven largely by increased demand and higher costs of providing services.
To address the looming deficit, Gov. Tim Walz in January proposed slowing spending on services for people with disabilities.
If Congressional Republicans cut Medicaid funding, Walz said he would rethink his proposed budget.
“The fix that we proposed, while it wouldn’t have dropped anyone off, wouldn’t have reduced quality of services, that would no longer hold true if they follow through. We’ll have to reassess at the time,” Walz said at a Capitol press conference Thursday.
Federal Medicaid cuts proposed in Tuesday’s federal budget resolution could mean a reduction of $1.2 to 1.6 billion for Minnesota starting in fiscal year 2027, and increasing in the following years, according to state budget officials.
Without knowing the specifics of where the cuts will come from, budget officials can’t project the full impact of federal funding changes.
Senate Republicans repeatedly criticized Democrats for holding the hearing Thursday, arguing that lawmakers should be focusing on the state’s finances and Walz’s proposed budget cuts, not potential federal cuts that aren’t finalized.
“We’re looking for a headline here and a distraction,” said Sen. Rich Draheim, R-Madison Lake. “We should be looking in our own mirror. We have our own problems here that we have to work through together.”
Sen. Glenn Gruenhagen, R-Glencoe, argued that it was too early in the federal budget process to fret over potential cuts, noting that Trump has previously said he would not touch Medicaid funding.
But after Trump said he would not cut Medicaid, he endorsed the House’s budget resolution that called for the $880 billion in cuts to programs overseen by the House Energy and Commerce Committee, which includes Medicaid.
“There’s not one person in the state of Minnesota that I know of that hasn’t received their Medical Assistance yet,” Gruenhagen said. “Is there some concern on the horizon? Yes. But to say that that’s going to happen and those people aren’t receiving anything — that simply is a fallacy.”