(KSTP/ABC 6 News) — Minnesota is headed on a negative fiscal trajectory in the near future, according to the state’s latest budget forecast.

The state will have a $456 million surplus heading into the 2026-27 fiscal year, down $160 million from the previous estimate, according to Minnesota Management and Budget. For the 2028-29 biennium, Minnesota is on course for a nearly $6 billion deficit — $852 million worse than was projected just a few months ago.

“Minnesota’s budget outlook has been adjusted downward amid significant near-term economic and fiscal uncertainty,” the forecast summary states.

Minnesota Management and Budget said “shifting policies at the federal level” will likely drive inflation in the near future, specifically citing tariffs, tax cuts and deportations.

And while the report released on Thursday considers economic “uncertainty” with regard to spending and investment, officials said tariffs and a shrinking federal workforce were not immediately factored into the budget projection.

DFL lawmakers were quick to blame the forecasted downturn on President Donald Trump’s tariffs on goods from Minnesota’s three largest trading partners — Canada, Mexico and China — and potential Congressional cuts to Medicaid.

Trump announced on Thursday he was postponing tariffs on Mexican goods for a month, while Canadian Prime Minister Justin Trudeau said his country was buckling up for a trade war.

“Minnesota is already starting to see the negative impacts of Donald Trump’s chaos, cruelty, and incompetence, with inflation, tariffs, and uncertainty taking their toll on our economy and state budget. And the worst is yet to come,” Rep. Melissa Hortman, DFL-Brooklyn Park, said in a statement.

Gov. Tim Walz also squarely blamed the Trump administration for the worsening economic outlook.

“There’s a storm at the federal level, and that storm is Donald Trump,” he said. “That’s the thing that’s changed between November and today’s numbers. … This is chaos. It’s nonsense. It’s not how you run any business — let alone the federal government — and the impact on states is immense.”

Republicans, meanwhile, say the answer is to cut spending at the state level.

“House Republicans warned that the out-of-control spending increases and tax hikes passed by the Democrat trifecta would wreak havoc on our state budget,” said House Speaker Lisa Demuth, R-Cold Spring. “While revenue continues to grow, spending is growing even faster. We cannot and will not raise taxes to fill this gap, especially after Democrats raised taxes on Minnesota families by more than $10 billion over the last two years.”

No matter what, passing a budget this session will require Republicans and Democrats to compromise. The DFL has a one-seat majority in the Senate, and the House of Representatives will likely be evenly split after a special election is held Tuesday to fill a vacant seat in a blue district.

At the beginning of the legislative session, Walz said his top priorities for this budget included expanding the tax base and preventing taxpayer money from being misused. The State Budget Office also predicts revenue cuts and higher spending on things like long-term care and special education.

“We’re cutting state spending. We’re cutting it responsibly. We’re making a difference in long-term fiscal stability without making Minnesotans sacrifice the quality they’re already getting,” Walz said in January.

In the last update – which was released in December – the state surplus was over $1 billion less than previously estimated.

Senator Liz Boldon (DFL-Rochester) issued the following statement on the budget forecast:

“Since the November forecast, one thing has changed – President Trump took office. Over the last month and a half, Trump and his top campaign donor, Elon Musk have fired thousands of hardworking public servants, gutted our regulatory agencies, and are now attempting to defund our social safety nets in order to give more tax breaks to the ultra-wealthy. With Minnesota and other states having to deal with the consequences of these shifted costs, these actions make it nearly impossible to build a budget for the next two years, much less one month from now.

“Today’s economic forecast is a testament to the chaos, corruption and cruelty happening at the federal level. Over the past two years, we have made smart budgeting decisions in Minnesota – investing in the working class with programs like Universal Free School Meals, Paid Family & Medical Leave, consumer protections, public infrastructure projects and measures to make healthcare and prescription drugs more affordable. However, Trump’s repeated attempts to take money from the middle class and hand it over to his billionaire buddies are taking us in the wrong direction, and creating massive uncertainty in our budgeting process. It’s time for Republicans to join us in standing up against Trump and Musk’s chaos and cruelty at the federal level, so that we can get back to supporting working-class Minnesotans.”

Senator Steve Drazkowski (R-Mazeppa) also issued a statement which read:

Senator Steve Drazkowski (R-Mazeppa) issued the following statement:

“Democrats’ empty promises have been exposed once again. They spent like drunken sailors over the past two years, wasting a $19 billion surplus and raising people’s taxes $10 billion. Their ship just hit the huge rock reef of reality, hanging Minnesota out to dry as we deal with the wreckage.”

“So where do we go from here? We cannot continue the unsustainable path they set us on. Our economic climate will not support Democrats’ reflexive tax and spending increases. Minnesotans have said ‘no more taxes’ repeatedly – Republicans are listening; let’s see if Democrats are too.

“We have to unwind the billions upon billions of excessive and unnecessary spending. We need to remove the $1 billion of inflation that Democrats baked into our budget forecast. We need to repeal the $900 billion spending for housing welfare – a 1,000% increase! We need to cut off the hundreds of millions of dollars in spending on illegal immigrants. We have to put a stop to — and prevent — the billions of dollars of waste, fraud, and abuse of taxpayer dollars that has metastasized throughout state government on Tim Walz’s watch. We need to claw back the billions of dollars recklessly being spent on self-serving and unaccountable non-profits.

We can fix the mess the Democrats created. There is a lot to do, but we need to get to work.”

You can see the full report below: