February Forecast Shows Budget Surplus of $3.7 Billion

The state’s financial outlook improved by $1.3 billion since November, but officials warn of a structural deficit in future budget cycles.

On Feb. 27, Minnesota Management and Budget (MMB) released its February budget and economic forecast, which shows that Minnesota has a budget surplus in the current fiscal year of $3.7 billion.

View the MMB February 2026 budget and economic forecast (pdf).

MMB cautioned, however, that a significant structural imbalance remains in future years. Current projections show spending outpacing revenue by $2.3 billion, along with an estimated $1 billion in anticipated inflation-related costs. If the current surplus were left unspent and carried forward, the state would have an estimated balance of $377 million in fiscal years 2028-2029.

State economists said the $1.3 billion improvement since the November 2025 forecast is largely due to a modestly improved economic outlook, resulting in higher-than-expected state revenue. They warned that uncertainty surrounding federal funding, particularly for programs like Medicaid, poses risks to the forecast. They also noted that increased spending on special education programs continues to be a significant driver of state expenditures.

What’s next

Despite the improved outlook, lawmakers face challenges in passing a supplemental budget before the legislative session adjourns May 18.

Gov. Tim Walz is expected to release his supplemental budget proposal in early March. Legislative leaders will then work to establish budget targets. Caution is expected to guide those discussions, given uncertainty around federal actions, the potential for an economic slowdown, and heightened partisanship in an election year.

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