Will the Minnesota Legislature Pass Federal Tax Conformity?

Both the House and Senate Tax Committees have held hearings to discuss the impacts of recent federal tax changes. Minnesota tax policy does not automatically conform to federal tax law changes, thus the issue of whether Minnesota should pass a tax conformity bill was also a topic of discussion. While there are several different conformity provisions that the legislature could consider, the one that seems to be at the top of nearly everyone’s list is the pass-through entity (PTE) provision. This particular provision has strong bi-partisan support, costs the state nothing, and Department of Revenue Commissioner Paul Marquart has emphasized its importance. Still, in the heated political environment that exists, passage is not guaranteed. The House Tax Committee will hold a hearing on the PTE Bill, HF 3127, on Tuesday, March 3. Expect to hear more about this as session progresses.

As Expected, Guns Are a Key Topic

For months, Democrats have been touting their plan to bring numerous pieces of gun-related legislation forward in 2026. Earlier this week, Governor Tim Walz presented his administration’s package of fifteen proposed pieces of legislation to reduce gun violence, including a ban on high-capacity magazines and assault rifles, increased taxes on firearms, mental health supports, safe storage laws, and firearm insurance requirements, among other issues. Also, this week, multiple gun-related bills received hearings in the House, but none received the bi-partisan support needed to advance out of a tied House committee.

State Budget Surplus Grows

On Friday, Minnesota Management and Budget (MMB) delivered the February Forecast, and it was unexpected, good news. MMB announced that the surplus in the current biennium (FY 26-27) has ballooned to $3.7 billion, an increase from the previous projection of $2.465 billion. The projected deficit in the FY 28-29 biennial planning estimates has increased from the previous deficit number of $2.96 billion to a positive balance of $377 million.

Budget Forecast Contains Uncertainty

While cautioning lawmakers on the structural imbalance in FY 28-29, the Forecast stated that “a slightly improved economic outlook drives a higher revenue forecast largely driven by more volatile sources of revenue…Shifting policies at the federal level and missing or incomplete data due to recent federal government shutdowns introduce significant uncertainty to the projections.” It remains to be seen how the impact of the immigration enforcement surge, the freezing of Medicaid funds, and fraud concerns will impact the state budget going forward.

Federal Government Freezes Minnesota Medicaid Funding

The federal government announced this week that it is temporarily withholding approximately $259 million in Medicaid funding to Minnesota, citing concerns about fraud prevention and oversight. Federal officials, including the Centers for Medicare & Medicaid Services, said the pause is intended to ensure the state strengthens safeguards against misuse of federal healthcare funds and has directed Minnesota to submit a corrective action plan within 60 days. Governor Tim Walz and Attorney General Keith Ellison strongly disputed the move, calling it politically motivated and emphasizing Minnesota’s record of prosecuting Medicaid fraud. The funding freeze could affect payments to healthcare providers serving low-income residents, though Medicaid coverage for beneficiaries is not expected to stop immediately. The dispute raises the possibility of legal action and could have broader implications for Minnesota’s healthcare system if the freeze continues or expands.

February 27, 2026