On Friday, Minnesota released updated budget projections, and at first glance, they looked surprisingly strong. For FY 2026–27, the state is projecting a $3.7 billion surplus, $1.3 billion more than estimated in November.
That surplus provides breathing room. But it doesn’t erase the underlying concerns.
Even with the short-term cushion, Minnesota still faces a structural imbalance, with spending projected to outpace revenue by FY 2028–29. And the numbers come with uncertainty. The state is currently in a dispute with the federal government over $259 million in withheld Medicaid funds. It’s money Governor Walz has called “totally illegal and unprecedented.” Federal officials say the move is intended to push the state to strengthen anti-fraud efforts.
At the city level, the picture is more complicated. Minneapolis has tallied more than $200 million in lost revenue tied to Operation Metro Surge. Millions in city funds are being redirected toward small business and rental assistance programs. Private donations for food and housing support continue to flow, a sign of both generosity and strain. In downtown real estate, the historic Lumber Exchange building recently sold for $1 — a symbolic marker of a market still searching for its footing.
Add to these pressures a war in the Middle East. History shows that when oil prices spike, the ripple effects move quickly through transportation, food, and consumer goods. Given how deeply energy costs are embedded in the broader economy, even a modest increase can tighten household budgets and slow growth.
We may not be in a recession. But the prudent posture for local governments is to plan as though growth will be harder to come by.
What Exactly is a Recession?
Economists typically define a recession as two consecutive quarters of shrinking GDP accompanied by rising unemployment, weaker consumer spending, declining corporate profits, and an increase in business failures.
At the city level, the indicators are less precise but just as important. Minneapolis has experienced significant economic disruption tied to recent immigration enforcement actions. The actual number of ICE remaining and the level of activity are difficult to assess. While detentions have lessened, the fear still exists. It will take months before we see comprehensive data showing whether business activity has rebounded.
We are likely to see some increase in unemployment, even though not all affected workers may qualify for state benefits. Several major employers have announced layoffs in recent months, including Target, American Public Media Group, Shop HQ, the Star Tribune, Bluestem Brands, OMG Midwest, and Old National Bank. While we don’t yet have full data, anecdotally, we are hearing about more layoffs than hires over the past year.
Large corporate profits appear relatively stable. Smaller businesses tell a different story. Restaurants in particular seem to be closing at a faster pace. D’Amico & Sons, Zen Box Izakaya, Café Ceres, and Mesa Pizza are among those that have recently shut their doors. Many local businesses are openly urging residents to shop and dine locally — a sign of both resilience and necessity.
At the same time, we hear little discussion from elected leaders about how artificial intelligence and automation may reshape the local job market. Some analysts warn that advances in AI could accelerate job displacement in white-collar fields such as administration, customer service, writing and media, technical analysis, translation, and paralegal work. Whether those predictions materialize or not, the pace of technological change suggests the conversation should be happening now.
We meet regularly with readers over coffee or at happy hour. In recent weeks, those conversations have taken on a different tone. People who are deeply invested in their neighborhoods feel unsettled. The Surge is part of it. But there are deeper concerns about the city’s trajectory and its ability to rebound.
Some have told us plainly: if not for family ties or business commitments, they would consider leaving Minneapolis. That’s difficult to hear, especially from people who have volunteered their time, money, and hearts to improve this city.
The Pulse
With so much shifting in Minneapolis — economically, politically, and socially — we want to pause and listen. We’ve put together a short survey to understand where our readers are right now. Your perspective helps shape what we cover and how we cover it. We hope you’ll participate.
