Minnesota policymakers are facing a number of challenges, including the need to respond to the damaging impacts of federal actions. This includes addressing new requirements and the harmful effects of the massive federal tax and budget legislation passed last July known as H.R. 1. The law makes unprecedented federal funding cuts and detrimental policy changes that dramatically impact health care, food support, and other services Minnesotans count on to be healthy and get by. It also permanently shifts more responsibilities for delivering and funding public services to the states and, at the same time, cuts federal funding the states receive. Other federal actions that policymakers must grapple with include targeted threats to federal funding for crucial services in Minnesota, and the humanitarian and economic impacts of Operation Metro Surge.
Minnesota’s budget picture improved in the state’s February Budget and Economic Forecast compared to earlier projections. The February forecast anticipates a $3.7 billion general fund surplus in the current two-year budget cycle (FY 2026-27), which contributes to a $377 million positive balance in FY 2028-29. Despite these improved budget numbers, the forecast includes many troubling signals for Minnesota and the national economy. Federal policy and economic uncertainty, and missing data, result in a more incomplete forecast.
In this environment, we argue that policymakers should take bold action that prioritizes and protects Minnesotans’ health and economic well-being, and raise additional state revenues in order to replace lost federal funding, protect crucial services, and meet Minnesotans’ needs.
This is the landscape in which Governor Tim Walz released his supplemental budget proposal on March 17.
Walz’s supplemental budget proposal makes relatively modest changes to the state’s overall budget balance. Under his budget proposal, the general fund surplus for FY 2026-27 would remain at $3.7 billion and the FY 2028-29 balance would increase to $730 million. The FY 2028-29 figures include discretionary inflation, which is the estimated cost to keep up with certain current public services. (Discretionary inflation is not automatically allocated to each program in the budget; programs only receive funding increases that are enacted in budget legislation.)
The Walz administration describes their priorities for the budget as including “lowering costs for middle class families, helping Minnesotans through workforce disruptions caused by artificial intelligence, and responding to Operation Metro Surge, while making responsible cuts to continue Minnesota’s record of balanced budgets.”
Regarding general fund spending for services, Walz proposes $113 million in net increases in FY 2026-27 and a $190 million net reduction in FY 2028-29. These net changes are compared to the baseline spending levels projected in the February forecast. Funding increases in budget areas such as Jobs, Commerce, Agriculture, and Housing are offset by reductions in Health and Human Services in both biennia and E-12 education in FY 2028-29.
Some of the larger areas of proposed funding changes in the supplemental budget include:
- Provisions focused on public program integrity and oversight;
- Actions to meet the new program and funding requirements under H.R. 1, such as some initial investments in needed IT upgrades for the systems to administer Medicaid and SNAP, and dollars to cover the new required state funding for a portion of SNAP benefits to protect Minnesotans’ access to that food support;
- Increasing by $50 million the amount of funding cuts that the Special Education Blue Ribbon Commission must make in FY 2028-29;
- Cutting projected spending for disability supports and services; and
- A capital budget proposal to fund infrastructure investments, including $907 million of projects funded by bonding.
Walz’s budget would reduce general fund revenues in FY 2026-27 by $21 million while raising an additional $246 million in FY 2028-29. The larger components of his tax package include:
- Raising additional revenues by expanding Minnesota’s sales tax to apply to some services while lowering the sales tax rate overall;
- Expanding Minnesota’s Child and Dependent Care Credit;
- Conforming Minnesota’s tax code to some of the tax provisions of the federal H.R. 1 law; and
- Creating a new tax on social media platforms and dedicating those revenues to initiatives related to “preparing Minnesota’s economy for Artificial Intelligence.”
| Governor Walz’s supplemental budget proposal: Net general fund changes by budget category | FY 2026-27 | FY 2028-29 |
| Jobs, Commerce, Ag, and Housing | $107 million | $4 million |
| Capital Projects and Grants | $45 million | $0 |
| State Government and Veterans | $24 million | $36 million |
| Transportation | $23 million | -$21 million |
| Debt Service | $12 million | $93 million |
| Public Safety and Judiciary | $11 million | $19 million |
| Environment and Energy | $10 million | $0 |
| E-12 Education | $238,000 | -$48 million |
| Higher Education | $0 | $0 |
| Property Tax Aids and Credits | $0 | $0 |
| Health and Human Services | -$120 million | -$271 million |
| Discretionary Inflation | $0 | $19 million |
| Tax Revenue | -$65 million | $238 million |
| Non-Tax Revenues | $44 million | $8 million |
| Total net general fund changes | -$63 million | -$353 million |
What’s next
For context in understanding Walz’s supplemental budget proposal, Minnesota has a two-year state budget cycle. Any changes that are enacted this year are building on the two-year budget passed in the 2025 Legislative Session.
The governor’s supplemental budget proposal represents his starting point as he goes into budget negotiations with the Legislature and is an important part of the conversation with the Legislature on what tax and budget policies they pass this year. To find more information on the governor’s supplemental budget proposal, visit this portion of the Minnesota Management and Budget website.
Stay tuned for our additional analysis of the governor’s supplemental budget proposal.