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Ewald at the Capitol: Budget Forecast, Shifting Political Landscape

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BUDGET FORECAST

On Dec. 4, Minnesota Management and Budget (MMB) released the November budget and economic forecast, the first look into the state’s fiscal health before the 2026 Legislative Session. The forecast showed that Minnesota is on a solid fiscal footing for the current budget cycle. This is largely due to higher revenue than expected throughout the fiscal year and a favorable year-end financial close, which leaves the state with an expected $2.465 billion surplus in the current biennium. Longer-term projections, however, are less favorable. Rising costs in the health care sector and expected sluggish economic growth are putting pressure on the state’s outlook, leading to an anticipated $2.960 billion budget shortfall in the FY 2028–29 biennium. Despite these future challenges, the state’s general fund reserves remain robust, holding steady at the statutory level of $3.771 billion.

During a press conference on Thursday, Gov. Tim Walz and legislative leadership spoke about the new budget forecast. Gov. Walz and DFL leadership emphasized that Minnesota’s financial position remains strong, with a budget surplus, reserves, and economic growth outpacing much of the country; results they attributed to responsible budgeting. They said the negative outlook is a product of national economic trends resulting from changes at the federal level — including HR1, which Congress passed this summer. Republican leaders criticized the budget outlook, saying the projected deficits come from excessive spending during the DFL trifecta and inadequate oversight of fraud by the Walz administration. Several questions were asked about the impact of fraud on the forecast, which MMB representatives said is not factored into the forecast. Both sides spoke on the fiscal restraints they face going into the 2026 session, and the importance of addressing fraud in state programs.

Gov. Walz and legislators will use the November Forecast to develop potential budget proposals for a supplemental budget. The legislature is not constitutionally required to enact a supplemental budget, even with a budget surplus.
 

SHIFTING POLITICAL LANDSCAPE

The legislative landscape has shifted significantly this year due to special elections, retirements, and 2026 candidacies. Following is a summary of the developments so far.

Sen. Matt Klein (DFL, Mendota Heights), Sen. Eric Pratt (R, Prior Lake) and Rep. Kaela Berg (DFL, Burnsville) are running for the Second Congressional District seat — which is currently held by U.S. Rep. Angie Craig, who is running for U.S. Senate.

Speaker Lisa Demuth (R, Cold Spring) and Rep. Kristin Robbins (R, Maple Grove) will vie for the Republican nomination for governor. Rep. Heather Keeler (DFL, Moorhead) is running for the Seventh Congressional District. Rep. Elliott Engen (R, White Bear Township) and Rep. Dan Wolgamott (DFL, St. Cloud) are running for State Auditor. Lastly, Rep. Cedrick Frazier (DFL, New Hope) is running for Hennepin County Attorney.

The list of legislative retirements continues to grow with the recent retirement announcements of Sen. Alice Mann (DFL-Edina) and Rep. Tim O’Driscoll (R, Sartell). Previously announced retirements include Sen. Steve Cwodzinski (DFL, Eden Prairie), Sen. Rich Draheim (R, Madison Lake), Sen. Jeff Howe (R, Rockville), Rep. Sandra Feist (DFL, New Brighton), Rep. Erin Koegel (DFL, Spring Lake Park), Sen. Sandy Pappas (DFL, St. Paul), Sen. Jim Carlson (DFL, Eagan), Sen. Ann Rest (DFL, New Hope), Sen. Jeremy Miller (R, Winona), Rep. Kelly Moller (DFL, Shoreview) and Rep. Ron Kresha (R, Little Falls).

Legislative retirements and changes can be found here.

Two special elections to fill vacant House seats in Districts 47A and 64A will take place on Jan. 27, 2026, following writs issued by Gov. Walz. The seats became vacant when Reps. Amanda Hemmingsen-Jaeger and Kaohly Vang Her resigned to assume new roles: Hemmingsen-Jaeger after winning a special election to the state Senate, and Her after being elected mayor of St. Paul. The balance of power in the House will remain an even 67–67 split if Democrats hold both seats when the Legislature returns on Feb. 17. Primaries will be held on Dec. 16.

There have also been committee leadership changes. Rep. Erin Koegel (DFL, Spring Lake Park) will be co-chair of the House Commerce Finance and Policy Committee following the resignation of Rep. Kaohly Her. Rep. Koegel served as co-chair of the House Transportation Committee, and will be succeeded in that role by Rep. Brad Tabke (DFL, Shakopee).
 

HOUSE RESEARCH OVERVIEWS

The Minnesota House Research Department provides nonpartisan and neutral research to legislators, staff, and the public. They recently published an updated overview of Minnesota’s Medical Assistance Program, which includes summaries of eligibility requirements, benefits, funding, and program spending. You can find the report here: Medical Assistance.

House Research also published a guide for School Finance in Minnesota, aimed at educating legislators. This report can be found here: School Finance.
 

IMPORTANT DATES

Dec. 16, 2025: Special Primary Elections for Districts 47A and 64A

Jan. 27, 2026: Special Election for House Districts 47A and 64A

Feb. 17, 2026: Start of Legislative Session

May 18, 2026: Adjournment of Legislative Session
 

EWALD GOVERNMENT RELATIONS TOOLKIT

We are sharing content along with our updates to help you better understand the legislative process and how to engage effectively. From decoding how the Legislature works to learning how to advocate for your priorities, these resources are designed to support your advocacy every step of the way.

This week’s article provides a basic overview of how the State Legislature functions.

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Ewald at the Capitol: Election Results, Budget Update

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ELECTION RESULTS

Tuesday was election day, and Minnesota voters went to the polls to decide several significant races.

Amanda Hemmingsen-Jaeger won Senate District 47, the seat left vacant after the felony burglary conviction and subsequent resignation of former Sen. Nicole Mitchell. The district covers parts of Woodbury and Maplewood, and Hemmingsen-Jaeger won with 61.74% of the vote over Republican Dwight Dorau’s 38.26%. In Senate District 29, Michael Holmstrom won the seat previously held by late Sen. Bruce Anderson, defeating DFL candidate Louis McNutt 62.3% to 37.7%. These outcomes return the Minnesota Senate to a narrow 34–33 DFL majority.

In municipal news, Rep. Kaohly Her will be the next mayor of St. Paul, defeating incumbent Melvin Carter and making history as the first woman and first person of Hmong descent to hold the office. In Minneapolis, incumbent Mayor Jacob Frey defeated Sen. Omar Fateh.

The wins by Reps. Her and Hemmingsen-Jaeger will create two vacancies in the state House. Gov. Walz said he anticipates calling for special elections later this month, with primaries being held on Dec. 16 and special elections on Jan. 27.
 

SPEAKER DEMUTH RUNNING FOR GOVERNOR

Over the weekend, Republican House Speaker Lisa Demuth officially announced her candidacy for governor. Demuth is the most senior Republican to enter the race so far, joining a crowded field that already includes Rep. Kristin Robbins, former GOP nominee Scott Jensen, and businessman Kendall Qualls. Several candidates have indicated they will run in a primary if they do not win the endorsement.

If she secures the Republican nomination and wins a potential primary, Demuth will face Gov. Tim Walz, who is seeking a third term. Her entry adds a new dynamic to the race, not only because of her position as Speaker, but also because she leads a closely divided House, where both parties currently hold an equal number of seats. How she balances the demands of governing while running a statewide campaign will be closely watched in the months ahead.
 

BUDGET UPDATE

Minnesota wrapped up its 2024–25 budget year with a stronger financial position than expected, posting a $941 million surplus. The state’s financial report from the Department of Minnesota Management and Budget shows revenues $1.3 billion higher than projected, while expenses were about $364 million above estimates.

The unexpected boost came mainly from higher tax receipts, and funds returned from projects or programs that didn’t use their full budgets. On the spending side, most of the increase was tied to education, as public schools enrolled about 1,800 more students than forecast and faced slightly higher special education costs.

This surplus gives lawmakers more flexibility going into an election year, possibly funding construction projects with cash or reducing debt, while also providing a buffer against potential future deficits. Two years ago, the state also finished ahead of projections by roughly $820 million.

Lawmakers will get a more refined understanding of the state’s economic situation in early December when the November forecast is released.
 

SPECIAL SESSION UNLIKELY

Last month, Gov. Walz walked back his commitment to call a special legislative session on gun restrictions, saying he would only do so if there’s an agreement among legislative leaders. The DFL governor, who previously vowed to reconvene lawmakers regardless of a deal, now says a session without bipartisan cooperation would be “a waste of money and time.”

Calls for a special session on gun violence came after the horrific shooting at Annunciation Catholic School in Minneapolis this summer. The divided legislature leaves neither party with enough votes to pass legislation without bipartisan support, which has proven difficult due to a significant difference in philosophies between Democrats and Republicans at the Capitol. It can be expected that these issues will surface during the 2026 Legislative Session, which convenes on Feb. 17, 2026.
 

LEGISLATIVE RETIREMENTS

The list of legislative retirements continues to grow, as Rep. Ron Kresha (R, Little Falls) announced last week that he will not seek reelection. His announcement comes in the wake of a lawsuit filed by conservative activists over claims that he committed fraud on applications for Paycheck Protection Program loans during the COVID-19 pandemic. This week, Sen. Sandy Pappas (DFL, St. Paul) also announced she will not be seeking reelection after more than four decades in state government.

Rep. Kresha and Sen. Pappas join a list of retirements this year that includes Sen. Jim Carlson (DFL, Eagan), Jeremy Miller (R, Winona), Rep. Kelly Moller (DFL, Shoreview), and Sen. Ann Rest (DFL, New Hope).

Legislative retirements and changes can be found here.
 

EWALD GOVERNMENT RELATIONS TOOLKIT

We are sharing content along with our updates to help you better understand the legislative process and how to engage effectively. From decoding how the Legislature works to learning how to advocate for your priorities, these resources are designed to support your advocacy every step of the way.

This week’s articles outline how to find information at the Capitol and how the bonding process works.

Article Links:
 

HELPFUL LINKS TO FOLLOW ACTION AT THE STATE CAPITOL
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