MMB projects $3.7 billion surplus for FY26–27 but warns of volatile revenues and federal risks

Minnesota Management and Budget Commissioner Erin Campbell told the House Ways and Means Committee on Feb. 24 that the state now projects a $3.7 billion positive balance at the end of fiscal years 2026–27, up $1.3 billion from the November forecast, with a projected $377 million positive balance at the end of the planning years if current assumptions hold.

"Minnesota is in a strong financial position," Commissioner Campbell said, while cautioning that the state’s increased reliance on volatile revenue sources and outstanding federal risks leave the forecast subject to change.

Key numbers and drivers: MMB reported a beginning biennium carryforward of nearly $10.3 billion, $1.2 billion in higher revenue estimates since November (driven largely by individual income tax and corporate franchise collections), and $68 million lower spending projections, yielding the $3.7 billion FY26–27 surplus. The agency said the increase in individual income tax receipts is driven in part by higher forecasts for nonwage income such as capital gains and interest.

State economist Dr. Anthony Becker told the committee that missing federal data related to the federal shutdown and recent trade-policy changes complicate forecasting and increase revenue volatility. "As a proportion of personal income tax coming from more volatile sources rises, the overall volatility of income tax collection also rises," Becker said, noting corporate franchise tax and capital-gains-driven collections are especially sensitive to market swings.

Spending changes and program impacts: State Budget Director Anna Mengele said changes in special-education spending and a new Medicaid prepayment-review process produced notable shifts. The forecast raises education spending by about $111 million this biennium (special education increases accounted for much of this upward revision), while a new DHS prepayment review for selected Medicaid claims produced initial estimated savings and cost avoidance totaling roughly $133 million this biennium when combined (a $53 million one-time timing effect plus $75 million in estimated provider billing reductions and smaller denial-driven savings).

Federal risks: MMB warned the forecast does not reflect potential federal actions that could reduce or delay reimbursements. The presentation cited CMS notices: an indicated intent to withhold $515 million in federal reimbursement (under appeal) and a separate notice pausing roughly $260 million in Medicaid reimbursements pending additional justification. MMB staff said losses or deferrals at that scale would materially affect the state’s outlook but were not incorporated into the February forecast.

Members’ concerns and next steps: Lawmakers asked how Minnesota’s reserve compares to other states and sought more detail on special-education drivers, tariff assumptions and potential impacts of federal HR1 changes and tax-conformity decisions. MMB said reserve comparisons depend on the metric used but highlighted that Minnesota’s reserve policy targets volatility and that more detailed follow-up would be provided on specific member questions. Commissioner Campbell recommended that policymakers consider offsetting new spending because of forecast volatility.

The committee closed the session after additional member comments about fraud detection and implementation risks; MMB said it will continue close monitoring of revenues and federal actions and will provide follow-up information to legislators.