This report presents the Children's Defense Fund's (CDF) recommendations for spending the fiscal year 1998-1999 Minnesota state budget surplus. The intent of the CDF plan is four-fold: (1) emphasizing long-term investments in children's well-being; (2) address children's immediate health and safety concerns; (3) contribute to the continued development of the state's workforce and economic development efforts; and (4) improve the state budget's stability. The report contains: (1) "Federal State Fiscal Overview," which outlines welfare bill changes, federal budget changes, children in poverty, children in working poor families, demographic/productivity issues, and the state budget; and (2) "CDF Biennial Budget Recommendations." The chief components of the recommendations are: (1) remove the caps placed on K-12 spending and provide for other initiatives in education; (2) increase the state's investment in child care; (3) update tax policies relating to children; (4) put increased monies toward reducing the incidence of birth defects and child abuse and neglect, and respond more quickly in cases where abuse has occurred; (5) supplement lost food assistance for poor legal immigrants; (6) increase access to higher education for low-income students and parents; (7) strengthen welfare reform efforts; and (8) maintain budget stability. Two appendices present "CDF Budget Spreadsheet" and "FY96-97 State Budget Pie." (SD)