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By Dana Ferguson, Minnesota Public Radio News

Minnesota Gov. Tim Walz rolls out his two-year budget proposal Thursday, a plan likely to contain spending pullbacks and other measures to control spending to keep a potential deficit at bay.

The more restrained approach comes after Democrats who’d controlled the governor’s office, House and Senate passed a roughly $70.6 billion two-year plan in 2023 that included one-time spending that won’t automatically carry forward. It was the state’s highest-ever budget total, but much of the built-in spending is set to fall away.

Without any changes, bottom line spending in the coming budget cycle would fall to $66 billion, according to the latest financial reports.

Walz is scheduled to present his plan at noon.

Minnesota lawmakers discovered last month they’d have less fiscal wiggle room than expected in their upcoming budget negotiations.

State officials reported Minnesota’s projected financial cushion through June 2027 had shrunk to $616 million — $1.1 billion lower than previously forecast. The cushion estimate doesn’t include possible changes to funding levels or inflation.

Walz and state legislative leaders have said they’ll look to cull the next spending plan to stave off a possible shortfall on the horizon in the 2028 and 2029 fiscal years, which could reach into the billions.

Lower-than-expected sales and income tax projections into the future along with higher spending for long-term care and special education have led to the concern over Minnesota’s finances. Economic growth is also likely to taper, officials reported last week.

State lawmakers will review the Walz proposal over the coming weeks. A new economic forecast will be released in late February.

After that, the House and Senate will craft their own budgets. They’ll need to reach a deal that can pass both chambers of the Legislature and secure the governor’s signature before July 1. If they fail to do that, all or parts of the state government could shut down with services curtailed.

Walz’s Thursday budget reveal comes as Democrats and Republicans continue to fight it out over who will control power inside the Minnesota House. A key House race currently set for a Jan. 28 election will be crucial in deciding whether the House is split evenly at 67-67 or whether Republicans gain a 68-66 controlling edge.

Ahead of the budget reveal, Republicans at the Capitol said they expected to see cuts to current spending levels and no increases in taxes or fees.

“Minnesotans are well over-taxed at this point, Minnesota has a spending problem,” House GOP Leader Lisa Demuth, R-Cold Spring, told reporters on Wednesday.

“Hopefully the governor will exercise just common sense from what people across the state are asking to have done to reduce the cost of government, reduce the waste in government and then shrink it, rather than growing it.”