Minnesota Minute: February 2026 Budget and Economic Forecast

February 2026 Budget and Economic Forecast

Today the state’s finance agency, Minnesota Management and Budget (MMB) released the February 2026 Budget and Economic Forecast, which showed a slightly improved economic outlook of a $3.7 billion surplus in FY 2026-27 and a $377 million surplus in FY2028-29. The February Forecast is the final economic update the Legislature will receive during the 2026 Session and is, therefore, the estimates they will use to set a potential supplemental budget. The previous forecast released last November showed a short-term budget surplus of $2.5 billion and long-term budget deficit of $3 billion. The improved economic outlook is mainly driven by a higher revenue forecast made up of more volatile sources of revenue.

Although the forecast numbers have improved since November, MMB warned that a significant structural imbalance remains as spending growth is forecast to outpace revenue growth. Total spending is forecasted at $70.2 billion and total revenue is forecasted to come in at $67.5 billion. The forecast also does not include any tax revenue impacts caused by Operation Metro Surge as this won’t be seen in the state’s monthly revenue report until March.

Shifting policies at the federal level and missing data from the recent federal government shutdowns also create significant uncertainty. The Trump administration’s recent threats to halt Medicaid funds to Minnesota could significantly increase costs for the state.

Elected Official Responses

Once state budget officials concluded their presentation on the state’s budget stature, Governor Walz and legislative leaders from each caucus shared their remarks on the unveiled numbers.

Governor Tim Walz

Governor Walz said Minnesota is in a strong financial position despite the federal government’s recent actions. He said Minnesota’s resilient and diverse economy and the Legislature’s work setting a bipartisan budget last year created this new outlook. He also acknowledged that federal actions cannot be underestimated, saying “Minnesota continues to weather economic blows from Operation Metro Surge and face unprecedented threats to the federal funding we rely on, including potentially devastating cuts to Medicaid. Our goal is to keep Minnesota on solid financial footing and ready to handle whatever comes our way.”

House of Representatives Speaker Lisa Demuth

Republican Speaker Demuth said the Legislature’s focus should continue to be on lowering costs for family budgets by keeping tax increases and more government spending off the table in the 2026 Session. She said the forecast gives the Legislature a “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 of Representatives Democratic Leader Zack Stephenson

House DFL Caucus Leader Zack Stephenson said “this is not a normal forecast day. This forecast comes with the biggest asterisk ever. All the improvements 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.” He said Minnesotans are worse off because of the chaos and uncertainty Trump has caused in his retaliatory campaign against Minnesota.

Senate Democratic Majority Leader Erin Murphy

Senate Democratic Majority Leader Erin Murphy said the surplus is due to Minnesota’s workers and businesses growing a strong economy and lawmakers making effective budgeting decisions. She warned that trouble is coming from Republicans and Donald Trump and that “state leaders are going to face hard decisions this year and into the future.”

Republican Senator John Jasinski

Republican Senator John Jasinski said the improved budget outlook is due to Trump’s economy and the end of Democrats’ full control of government in Minnesota. He also said, “we need to stop the overspending, crack down on fraud for real, and start putting Minnesota families first.”

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