Budget Forecast Shows Short Term Stability But Long Term Issues Remain
Late last week Minnesota Management and Budget (MMB) released the first of two budget forecasts leading up to the 2026 legislative session. Minnesota’s budget outlook remains mostly stable in the current biennium (FY 26-27) with a projected budget surplus of $2.465 billion. However, budget complications in the future remain. Slower economic growth and increased health care costs are expected to grow the structural imbalance for FY 28-29, with an estimated structural deficit of $2.96 billion. General Fund reserves meet the statutory target of $3.77 billion, which is necessary for any unexpected issues the state may face. The legislature will use this forecast, and the one released in February, to guide their work as they navigate the upcoming 2026 legislative session.
Minnesota Political Update
As we look toward the 2026 legislative session and the 2026 elections, the political landscape continues to evolve as individuals announce retirements or new political endeavors. The following are a few developments from the past week:
This is the second to last week in session for the United States Congress. The Senate returns this afternoon, and the House comes back Tuesday evening. House Republican staff directors will be in Boston for their annual retreat. Both chambers are preparing for a busy stretch focused on health care and defense policy as the clock runs out on 2025.
The stakes are high. The National Defense Authorization Act (NDAA) has passed every year for the last 64 years, which adds real urgency to the negotiations now underway. At the same time, there is far less urgency among Republican leaders in either chamber to address the expiration of the enhanced ACA subsidies. Rank and file Republicans, however, are beginning to push for action.
Health Care Negotiations
A new bipartisan Republican proposal is attracting attention. Senators Bernie Moreno of Ohio and Susan Collins of Maine have released a two-year extension plan with income caps and reforms to eliminate zero premium plans by requiring a minimum $25 monthly payment. Under their proposal, the full tax credit would be available up to 400 percent of the federal poverty level and then gradually phased out so that households above $200,000 would no longer receive assistance.
Their effort comes as the Senate prepares to vote this week, likely Thursday, on Democratic legislation to extend the subsidies for three years. That vote is expected to fall well short of the 60 votes needed. Senate Republicans are not planning to hold a vote on a unified GOP proposal, which has created some internal frustration, particularly among senators who are up for reelection in 2026 and want to be on record supporting an alternative.
Other potential GOP options include Senator Bill Cassidy’s proposal to expand HSA flexibility and Senator Rick Scott’s legislation, which aligns with ideas promoted by President Trump. Scott’s bill is gaining support in the House among members of the Republican Study Committee.
Over in the House, Speaker Mike Johnson has said he expects to settle on a health care package this week. Whatever emerges is unlikely to become law. The real question is whether Johnson will include an extension of the ACA subsidies. Even if he does, it may not stop a group of House GOP moderates from attempting a discharge petition to force a compromise. That would be a difficult path procedurally, but it underscores how strongly some Republicans want to avoid the subsidy cliff.
Defense Talks
Congressional leaders released the compromise NDAA, which authorizes more than $900 billion in national security spending, repeals both the 2002 Iraq War and 1991 Gulf War AUMFs, and provides a 3.8 percent pay increase for servicemembers. The final topline represents an $8 billion increase over the White House request and was one of the late-stage issues negotiators had to resolve with appropriators.
Two major provisions were ultimately left out of the final bill. First, the ROAD to Housing Act, a sweeping housing supply measure added on the Senate side, was removed following opposition from House Financial Services Committee Chair French Hill. Second, expanded IVF coverage for servicemembers, which appeared in both chambers’ bills, was cut from the compromise text after pushback from Speaker Johnson.
Notably, the compromise NDAA does not include the bipartisan effort to prohibit the renaming of military bases. Similar provisions previously contributed to President Trump’s veto of the FY2021 NDAA, which Congress overrode.
The House needs to consider the NDAA this week in order for the Senate to act during the week of December 15. The House Rules Committee will meet Tuesday afternoon to begin that process.
As always, our team will continue to monitor activity closely and keep you informed as Congress works through the final days of the year.
