LFC and governor outline competing FY26 budget plans; recurring growth limited to preserve reserves

Director Salee and Legislative Finance Committee staff summarized the LFC recommendation on Jan. 8 and said the committee’s recurring proposal increases the base budget by about 5.7% for FY26 and prioritizes early childhood, public education, behavioral health, water projects and infrastructure.

The nut graf: Both the LFC and the governor’s executive budget move in similar directions on priorities but differ on some technical choices and the mix of recurring versus nonrecurring spending. LFC recommended leaving larger reserve buffers informed by stress tests; the executive’s plan also preserves high reserves (about 30%) while proposing targeted program increases and a compensation package for public employees.

Highlights and context: LFC proposed recurring budget growth of 5.7% and recommended a set of nonrecurring investments including about $300 million for water projects (including a $222 million boost to the Water Project Fund), $350 million for a transportation package (state and local), $75 million for a federal match fund to attract federal grants, and funds for behavioral health and economic development. LFC’s stress-test analysis suggested a reserve target near $2.1 billion to cover modeled shortfalls; the LFC plan would leave reserves near 33% of recurring appropriations per testimony.

Executive recommendation: Department of Finance and Administration Secretary Wayne Probst presented the executive budget as approximately $10.944 billion in general fund recommendations for FY26 (about a 7% increase overall where a portion is compensation). The executive would leave reserves near 30% and proposes a compensation package including pay increases for public employees and a proposed longevity pay program. The executive also proposed $50 million each for housing down‑payments and homelessness interventions and recommended spending from the Early Childhood Education Trust Fund for ECECD priorities.

GROW fund and accountability: Committee members questioned the structure and transparency of the GROW fund (multi-year nonrecurring appropriations set aside last session). LFC staff said a GROW accountability bill will be sponsored and brought to the committee to define evaluation and reporting requirements and to differentiate member-driven one-time appropriations from multi-year program expansions funded from the GROW.

Other program notes: LFC staff described a performance-and-results framework linking appropriations to measurable outcomes and said program evaluation units will continue to track implementation. Several committee members pressed for agency-level details (vacancy rates, program performance) before adopting larger recurring expansions. LFC staff emphasized the difference between appropriating nonrecurring dollars for pilot or time-limited programs and adding new recurring costs that reduce future new money.

Ending: Both bodies urged caution about expanding recurring commitments and recommended using stress-test results to set reserve policy. Staff offered to provide committee members with side-by-side technical comparators and additional fiscal impact materials as the session progresses.