ST. PAUL, Minn. — ST. PAUL, Minn. (WCCO) Minnesota is expected to have a $616 million surplus in the next two-year budget, state officials said Wednesday, but there is a looming $5 billion deficit in future years—teeing up a debate in the legislature about how to rein in spending to stave off that projected shortfall.

That surplus for the next biennium, which covers fiscal years 2026 and 2027, shrunk by $1.1 billion compared to what officials anticipated at the end of the legislative session this year. There is an anticipated structural imbalance—spending exceeding revenues—but a carryover balance blunted the impact and left some money on the bottom line for lawmakers when they put together the next budget when they return in January. 

But in fiscal years 2028 and 2029, if the state keeps at this pace, it will see that deficit. Costs for special education and disability services are two drivers of increased spending, the forecast showed. 

“Liike many other states, Minnesota is facing some significant economic and financial headwinds,” said Erin Campbell, commissioner of Minnesota Management and Budget, who cited a decline in COVID-era federal stimulus funding and related consumer and business spending, which boosted tax revenues in the state. 

Campbell underscored that the decisions lawmakers make next year for the budget in the near term will impact the future years, so they should act wisely. Providing a budget forecast for a four-year window with this information allows them to course correct, she said. 

“Not only do we have notice about a problem on the horizon, we also have ample time to take action and change the trajectory,” she explained. 

Gov. Tim Walz told reporters “everything is on the table” to address the state’s financial outlook when the legislature returns in January, this time with a divided government. The House right now stands at a 67 to 67 tie, ending the DFL trifecta that defined the last two years. 

Republicans in response to the forecast news were quick to place blame on Democrats for putting the state’s finances on the brink. They noted how Management and Budget last year warned of the mismatch between the amount of money the state was spending compared to the revenues it was raking in.

“The results that we saw with this budget forecast that came out today is exactly what House Republicans have been warning for the last two years would be the case,” said House Republican Leader Lisa Demuth, R-Cold Spring. “Democrats ignored those warnings from Republicans. They ignored the warnings from their own party’s administration, and now again, we have that moving $5 billion deficit projected just a few short years.”

Meanwhile, DFL leaders highlighted the state’s robust rainy day funds that exceed $3 billion and tempered some concerns about the state’s future finances, vowing a balanced budget and bipartisan work this year to get it done. 

“I am confident that we will do what we have done over the previous cycles, which is to responsibly manage Minnesota’s budget to leave long term economic stability and surpluses,” said House Speaker Melissa Hortman, DFL-Brooklyn Park. 

Demuth pledged that House Republicans were sending out letters to all state agencies to get information about how many full-time positions for which they get a state appropriation are unfilled; the terms of leases on any buildings that may not be fully used due to hybrid work; and how many “DEI employees” have been added across each department. 

She suggested the latter should be streamlined, so staff aren’t doing duplicative work.

“Given the fact that we have a budget crisis on the horizon, we need to start working now to evaluate efficiency of our state programs and working to root out the hundreds of millions of dollars in fraud that is still likely going on across state government,” she said. 

The next legislative session begins January 14. To see the full budget documents, click here.

University of Minnesota students filled the Minneapolis City Council meeting room Tuesday and successfully lobbied a narrow majority of council members to urge authorities to back off discipline and charges against protesters opposing the Israel-Hamas war.

By a 7-5 vote, council members, meeting as a committee, approved a resolution “expressing solidarity with nonviolent campus activism opposing war and supporting Palestinian human rights” and urging the university to rescind all discipline against students involved in an October protest. It also asks prosecutors to back off any criminal charges against the protesters.

The U disputes that all the protesters were nonviolent.

The resolution goes to the full council on Thursday and, if passed, then to Mayor Jacob Frey, who released a statement Tuesday night saying he’ll veto the resolution because while he supports First Amendment rights, that doesn’t extend to actions that endanger the safety of others.

“The council’s resolution risks setting a disturbing precedent that must apply to all groups evenly regardless of the cause they are protesting,” Frey said. “It is concerning to me that any council member could view this as acceptable, and I will veto the resolution without hesitation.”

At Tuesday’s meeting, students and professors held signs and wore T-shirts in support of the protesters and dismay at the university’s reaction to an October 21 protest where several hundred pro-Palestinian demonstrators gathered and about a dozen were arrested after barricading Morrill Hall, the site of the Twin Cities campus administrative offices.

Council urges university to drop penalties

During the protest, Students for a Democratic Society used patio furniture to create barricades, covering the building’s front windows, as part of their push for the university to divest from companies with ties to Israel.

University officials say protesters spray-painted security cameras, broke interior windows, and barricaded entrances and exits, trapping staffers for “an extended period of time.” University police and Hennepin County Sheriff’s Office deputies arrested at least 11 protesters soon after.

The resolution was sponsored by Council Member Robin Wonsley, who said campus activism has been crucial to many movements, including the civil rights movement.

“Nearly all of these nonviolent protests were criminalized and repressed at the time but are now widely celebrated and praised for taking bold and necessary action to achieve social change,” she said.

Wonsley accused the university of trying to criminalize student protesters by evicting them from student housing, suspending them for up to 2½ years and making them pay up to $5,000 in restitution in one case.

Juliet Murphy of Students for a Democratic Society said seven of eight student protesters who were arrested and jailed were recently told they could be suspended for one to five semesters, be ordered to do 20 hours of community service and have to write a five- to 10-page essay on the difference between protest and vandalism. Murphy said one was told they would have to pay $5,636 in restitution in order to be readmitted to the university.

A university spokesman said federal and state privacy laws prevent the university from confirming or commenting on any specifics related to individual student discipline.

The City Council resolution urges the university to rescind all academic charges, suspensions, fines, and evictions and instead work with the group to accomplish their goals. It also urges city and county attorneys to drop or not pursue criminal charges against the protesters.

A spokesman for the Hennepin County Attorney’s Office said only one person had been charged by that office in connection with the protest: a fourth-degree assault charge for spitting at a police officer. All the other cases were referred back to the police for additional investigation but haven’t been resubmitted for possible charges.

“Protesting at the University of Minnesota has a rich history, as the City Council states, and individuals safely exercising their freedom of speech are to be commended,” a statement by the office said.

U President Rebecca Cunningham has said the incident was not a peaceful protest, because “These actions crossed the line into illegal activity when they actively threatened the emotional and physical safety of our employees, prevented their free movement, disrupted building operations and destroyed campus property.”

In a Tuesday social media post, University of Minnesota Regent James Farnsworth accused Wonsley of making “a number of factual errors and misstatements” during the council meeting.

“As I’ve previously stated, peaceful and respectful protest/demonstration are cornerstone to a university campus,” he wrote. “That was not what took place in October.”

The students chose Morrill Hall because of its history as a site for activism: In 1969, 70 Black students occupied the building in a peaceful 24-hour protest against institutional racism.

U Associate Professor Sima Shakhsari, speaking as a private citizen, joined the students at the council meeting and said afterward that Morrill Hall has been the site of over ten occupations, and this is the harshest punishment the university has handed down. Some protesters spent more than 40 hours in jail before being released without charges, Shakhsari said.

“When it comes to Palestine, our students are marked as terrorists,” Shakhsari said. “The students have been punished enough.”

The resolution passed the Committee of the Whole — which comprises the full council — by a vote of 7-5 and was supported by Council Members Wonsley, Jason Chavez, Aurin Chowdhury, Jeremiah Ellison, and Jamal Osman, as well as Council President Elliott Payne and Council Vice President Aisha Chughtai.

It was opposed by Council Members Michael Rainville, LaTrisha Vetaw, Katie Cashman, Emily Koski and Linea Palmisano.

Council Member Andrea Jenkins was absent.