Stable budget outlook projects $3.7 billion surplus now, no deficit in next biennium

— UPDATED at 12:46 p.m.

The projected surplus for Fiscal Years 2026-27 is now higher than it was in the November estimate, and no deficit is projected for the next biennium.

“Minnesota’s budget outlook has improved amid significant near-term economic and fiscal uncertainty,” according to the February forecast released Friday by Minnesota Management and Budget.

The 2026-27 biennium projected balance is now $3.7 billion, $1.3 billion higher than November estimates. “A slightly improved economic outlook drives a higher revenue forecast largely driven by more volatile sources of revenue,” according to MMB.

However, spending growth is forecast to outpace revenue growth in the projections through Fiscal Year 2029. The projected General Fund balance for the 2028-29 biennium is now $377 million, but “a significant structural imbalance remains. Shifting policies at the federal level and missing or incomplete data due to recent federal government shutdowns introduce significant uncertainty to the projections,” according to MMB.

The forecast released Friday provides the most recent snapshot of the state's financial health. It is the first look at projections since the November 2025 forecast of an almost $2.47 billion surplus for the current 2026-27 biennium and a $2.96 billion deficit in the next.

Revenue and spending

Revenue for Fiscal Years 2026-27 is forecasted to come in at $67.5 billion while total spending is forecasted at $70.2 billion.

On the revenue side, individual income tax collections are expected to exceed levels forecast in November by $665 million while corporate franchise tax collections are up by $336 million, sales tax collections are up by $86 million and other revenue is up by $114 million.

Spending for E-12 education is now projected to be $111 million more than in November because of higher spending in special education.

Health and human services spending is forecasted to be $162 million less than projected in November. That’s due to the new pre-payment review process for Medicaid claims that Gov. Tim Walz announced in October. That new process has impacted the forecast because payments for claims are delayed, providers are billing for less in what’s called “cost avoidance,” and denials of claims that would have been paid before the process went into place. The pre-payment review process is forecasted to reduce spending by $133 million in Fiscal Years 2026-27 and by $105 million in Fiscal Years 2028-29.

The state is in a strong financial position, but forecasters said there’s several uncertainties that present risks in the budget.

Those include lack of access to information that would normally be included in the February forecast due to the government shutdown in October and the current partial government shutdown. The February forecast also doesn’t include any tax revenue impacts caused by Operation Metro Surge, which won’t be seen in the state’s monthly revenue report until March at the earliest.

There are budget uncertainties around the federal funding the state receives. The Trump administration’s threats to Minnesota’s federal funding could result in increased costs for the state, which includes the announcement this week to halt $259 million in Medicaid funds from the state. State law is also out of compliance with HR1, known as the “One Big Beautiful Bill,” and the state could lose significant federal funds if state law isn’t brought into compliance.

House leaders react

"Today’s forecast gives us the chance to pass a bipartisan tax conformity bill that helps workers through common-sense policies, like no tax on tips and no tax on overtime, and helps our Main Street businesses continue to be the job creators that keep our state strong," House Speaker Lisa Demuth (R-Cold Spring) said in a statement. "Tax increases on Minnesota families and more government spending should be off the table, and our focus should remain on lowering costs on family budgets."

“This is not a normal forecast day. This forecast comes with the biggest asterisk ever. All of the improvement we see in the forecast today — in fact more than all of it — would be offset by just the cuts to Minnesota’s Medicaid funding that were announced by the Trump Administration earlier this week, to say nothing of the other cuts Trump has promised,” House DFL Caucus Leader Zack Stephenson (DFL-Coon Rapids) said in a statement. “Unless Donald Trump’s retaliatory campaign against Minnesota is stopped, these surpluses are actually deficits. The chaos and uncertainty Trump has caused will make it very challenging for legislators to make budget decisions going forward, and real Minnesotans will be worse off because of it.”

• This story will be updated throughout the day.