A new state budget forecast gives a stronger financial outlook for Minnesota, but top elected officials cautioned that uncertainty surrounding federal funding and program fraud are still points of concern.
The report from the Minnesota Department of Management and Budget released on Friday shows February’s projected balance is now $3.7 billion for the 2026-27 fiscal year.
It’s nearly $1.3 billion higher than the November estimate, which forecast a $2.5 billion surplus.
RELATED: Minnesota budget forecast shows nearly $2.5B surplus in short-term, $3B deficit looming
The projected general fund balance for the 2028-29 biennium now flips a previously forecast $3 billion deficit to a $377 million surplus.
“The State of Minnesota is on strong financial footing,” Management and Budget Commissioner Erin Campbell said during a news conference on Friday. “Despite structural imbalances, we expect to end this biennium and the next with a positive balance. That’s a big improvement from November.”
State officials partially attribute the improved financial outlook to more tax revenue from capital gains, interest income and corporate profits. Campbell cautioned lawmakers about uncertainty ahead as they plan how to spend tax dollars this session.
“Continued federal funding uncertainty could have impacts on our general fund bottom line — and any spending this biennium will impact the positive balance,” she said.
Gov. Tim Walz agreed that Friday’s report was positive on its face, but he took a wary approach to spending this legislative session.
“Be fiscally conservative, focus on the things that make a difference, focus on the things that are growing our economy, creating the surplus, and helping peoples’ lives, but be very thoughtful,” the governor said.
How fraud affects the bottom line
While fraud is a concern in conversations around Minnesota’s finances, it isn’t accounted for in the budget outlook numbers. But the scandal’s residual impacts — like the Centers for Medicare and Medicaid Services pausing $259 million in quarterly Medicaid funds over fraud concerns — loom large.
As the Trump administration pinches federal funds destined for Minnesota’s Medicaid-based programs, Minnesota Budget Director Ahna Minge says losing on appeal could force the state to spend billions of dollars it hasn’t budgeted for.
“In general, if we lose, we don’t know when the withholding would start,” Minge said. “We don’t know how many quarters it would be withheld, so it’s hard to say for certain, but a loss of $515 million in federal funding would mean an increase in state spending of $515 million, so on an annual basis, that’s about $2 billion dollars.”
RELATED: Federal government halts $260M Medicaid funds to Minnesota over fraud
Walz continued to criticize the federal government’s threats to cut funding, which could impact the state’s budget.
“I am deeply concerned, too, that there are those that their answer to stopping fraud is to cut the program. The reason we have such a great state and we’re having people move in, and we’re seeing surpluses is because we have these programs,” said Gov. Tim Walz.
Republicans say this is a step that can ensure accountability.
“There are things we can do at a state level that will help us avoid any cuts, but when we’re looking at fraud and it has gone on for years under the current administration, there needs to be a level of responsibility that when it wasn’t taken at a state level, the feds are going to help us make sure there is not more fraud going on,” said House Speaker Lisa Demuth, R-Cold Spring.
Since the session started on Feb. 17, both sides have introduced legislation to combat fraud, including a proposal to create a new inspector general position.
RELATED: Gov. Walz unveils new anti-fraud legislation package
RELATED: Inspector General bill remains stalled in Minnesota House
RELATED: Minnesota lawmakers under pressure to combat fraud this session
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