Walz Highlights Policy Record and Future Priorities in Final State of the State

In his final State of the State address, Governor Tim Walz highlighted the key policy initiatives and investments that have defined his administration, with a focus on infrastructure improvements, public safety efforts, and reforms to Minnesota’s human services systems. He pointed to ongoing work to modernize Medicaid and strengthen service delivery, emphasizing the importance of making government programs more efficient and accessible. Walz framed his tenure around economic stability, support for working families, and long-term investments designed to position the state for continued growth.

Looking ahead, the governor underscored the need for continued collaboration among state leaders to address fiscal challenges and sustain recent policy gains. He called for a steady approach to budgeting and implementation, particularly as the state continues to refine oversight of major programs and adapt to evolving economic conditions. Walz closed by emphasizing continuity and shared responsibility in maintaining Minnesota’s progress beyond his time in office.

House Budget Resolution Sets Modest Spending Targets as Session Nears Final Weeks

The House Ways and Means Committee has approved a budget resolution outlining approximately $41.1 million in new spending for the 2026-27 biennium. The resolution, while not required in an even-numbered year, establishes funding targets for a range of finance bills already moving through the legislative process. Major allocations include $15.4 million for public safety, about $1.5 million for higher education, and smaller amounts for workforce development and elections, along with a proposed $2 million reduction in housing funding.

In addition, roughly $25.6 million is reserved for standalone bills that have been heard or are expected to be considered, signaling continued movement on individual policy priorities late in session. The resolution also sets limits on spending from the Workforce Development Fund and maintains key budget reserves, including $3.42 billion in the state’s reserve account. Lawmakers noted that additional budget resolutions may follow as more omnibus packages advance, with the Legislature facing a May 18 deadline to complete its work.

Senate Tax Committee Advances Omnibus Tax Bill

The Senate Tax Committee on Thursday advanced SF 5052, its omnibus tax bill for the 2026 session, setting up the chamber’s tax priorities for the final weeks of session. The package would reduce state revenues by $10.2 million in FY 2027, followed by a net increase in revenue of approximately $417 million in FY 2028–2029. While the committee has approved the measure, the Senate cannot yet take it up on the floor, as lawmakers are waiting for the House to release and pass its own tax bill. With divided control in the House, the proposal’s timing and scope remain uncertain as the legislature enters its final stretch.

The Senate package includes a mix of tax relief, new revenue measures, and policy changes. It adopts a limited approach to federal tax conformity, including bonus depreciation but excluding several other business-related provisions. The bill also creates a new social media excise tax based on subscriber levels, projected to raise significant revenue, and modifies incentives for sustainable aviation fuel production. Additional provisions establish a Department of Revenue ruling program to provide taxpayer guidance, increase funding for the homestead credit refund program, and authorize or extend dozens of local sales taxes. The bill also proposes changes to worker classification standards and extends and increases a Hennepin County sales tax to support hospital funding, among other provisions.

Pass-Through Entity Provision to Be Added on Senate Floor

During the Senate Tax Committee hearing on Thursday, Committee Chair Ann Rest said a key pass-through entity (PTE) provision—allowing certain businesses such as partnerships and S corporations to elect to pay state income taxes at the entity level rather than on individual owners’ returns—was intentionally excluded from the omnibus tax bill, SF 5052. She explained the provision will instead be offered as the first floor amendment, emphasizing that it previously received unanimous bipartisan support in committee. Rest noted that bringing it forward separately will give all senators the opportunity to vote on the policy, and she expressed hope that advancing it in this way will once again position the Senate to lead on the issue as discussions with the House move forward.

Bipartisan OIG Bill Likely to Make it to Finish Line

While there are still many issues waiting to be resolved, one of them—a bill to establish an Office of Inspector General (OIG)—passed a key committee Wednesday night and seems poised to become law. The OIG bill (S.F. 856, Sen. Gustafson / H.F. 1338, Rep. Norris) was first introduced in 2025 and passed by the full Senate in May 2025 with an overwhelming bipartisan vote of 60-7. Despite the bill advancing out of at least ten committees in the Senate, it stalled in the tied House. Throughout the 2026 legislative session, the House passed the bill through various committees, while supporters engaged in bipartisan and bicameral negotiations. Though the bill was placed on the April 29 agenda in the House Ways and Means Committee, the committee recessed for several hours while negotiations continued and it was unclear if the bill would make it out of committee that day. However, when the committee did reconvene, it was announced that a bipartisan agreement had been reached with the Senate. The bill was amended to reflect the agreement and passed out of committee. Its next stop will be the House floor. The OIG bill is considered a key component of the legislature’s attempts to address fraud in government programs.

On April 22, 2026, the Consumer Financial Protection Bureau (CFPB) took action that could reduce compliance and litigation risk for banks. The CFPB issued its final rule that amends provisions related to disparate impact, discouragement of applicants or prospective applicants, and special purpose credit programs under Regulation B, the regulation implementing the Equal Credit Opportunity Act (ECOA). The amendments clarify the compliance obligations imposed by the statute and eliminate disparate impact provisions. The final rule is effective July 21, 2026.

The final rule largely adopts the proposed rule issued in November 2025. In the CFPB’s explanation of the rulemaking, the CFPB notes that the U.S. Supreme Court (1) has not held that disparate-impact claims are available under all antidiscrimination statutes and (2) has not examined whether a disparate-impact claim is permitted under ECOA. The Supreme Court precedence only states that Age Discrimination in Employment Act authorizes disparate-impact claims and disparate-impact claims are cognizable under the Fair Housing Act. The CFPB concludes that “[the statutory] text of ECOA does not state that disparate-impact claims are cognizable under ECOA, nor does it contain effects-based language of the type that has been found in other statutes to invoke disparate-impact liability” and “[the Federal Reserve] Board’s regulations to implement [ECOA] explicitly and solely relied on [the] legislative history [of the 1976 amendments] to conclude that Congress intended for ECOA to permit an ‘effects test concept,’ i.e., disparate-impact proof of liability.”

The final rule provides that the ECOA does not authorize disparate-impact liability (effects test), further defines discouragement, and adds prohibitions and conditions for special purpose credit programs. These amendments to the definition of “discouragement” and removal of the “effects test” from the rules concerning evaluation of applications means that bank compliance under the ECOA will be viewed in a much different light.

The new rules are as follows:

• 1002.4(b) Discouragement. A creditor shall not make any oral or written statement, in advertising or otherwise, directed at applicants or prospective applicants that the creditor knows or should know would cause a reasonable person to believe that the creditor would deny, or would grant on less favorable terms, a credit application by the applicant or prospective applicant because of the applicant or prospective applicant’s prohibited basis characteristic(s). For purposes of this paragraph (b), oral or written statements are spoken or written words, or visual images such as symbols, photographs, or videos.
• 1002.6(a) General rule concerning use of information. Except as otherwise provided in the Act and this part, a creditor may consider any information obtained, so long as the information is not used to discriminate against an applicant on a prohibited basis. The Act does not provide that the “effects test” applies for determining whether there is discrimination in violation of the Act.

The CFPB amended Section 1002.15(d)(1)(ii) regarding the scope of privilege in incentives for self-testing and self-correction to remove the parenthetical “(including a prospective applicant who alleges a violation of § 1002.4(b)).”

The CFPB further revised the special purpose credit program provisions to expand the required information to include in a written plan in Section 1002.8(a)(3)(i) and to provide exceptions to the common characteristic provision in Section 1002.8(b)(2). Those exceptions are as follows:

(3) Prohibited common characteristics. A special purpose credit program described in paragraph (a)(3) of this section shall not use the race, color, national origin, or sex, or any combination thereof, of the applicant, as a common characteristic or factor in determining eligibility for the program.

(4) Otherwise prohibited bases in for-profit programs. Subject to paragraph (b)(3) of this section, a special purpose credit program described in paragraph (a)(3) of this section may require its participants to share one or more common characteristics that would otherwise be a prohibited basis only if the for-profit organization provides evidence for each participant who receives credit through the program that in the absence of the program the participant would not receive such credit as a result of those specific characteristics.

In Section 1002.8(c), the amendments to special rule concerning requests and use of information require that the special purpose credit program must satisfy the requirements for standards for program under Section 1002.8(a) and the controlling provisions under Section 1002.8(b). Prior to this amendment, the section only referenced Section 1002.8(a).

The CFPB also amended the official interpretations to Part 1002 for the following sections:

• Section 1002.2(P) Empirically Derived and Other Credit Scoring Systems
• Section 1002.4(B) General Rules related to Discouragement
• Section 1002.6(A) General Rule Concerning Use of Information
• Section 1002.8(A) Standards for Special Purpose Credit Programs
• Section 1002.8(B) Special Purpose Credit Program Controlling Provisions
• Section 1002.8(C) Special Rule Concerning Requests and Use of Information

Banks should review these amendments and official interpretations and make any necessary changes to their compliance policies, procedures, and fair lending plans before the compliance deadline. We expect that these changes will reduce the regulatory burden and litigation risk exposure that banks have historically faced with respect to disparate impact claims. However, we caution banks that a future administration could take a different stance on disparate impact and perform a lookback during an exam or enforcement despite the changes to the regulation. Winthrop’s regulatory attorneys can help you discuss compliance strategies and recommend any changes.

The reporting deadline under Amara’s Law, Minnesota Statute Section 116.943, has been delayed again. Now, initial reports on per- and polyfluoroalkyl substances (PFAS) in products distributed or sold in Minnesota are due on September 15, 2026.

Amara’s Law addresses the use of PFAS in consumer products. It has two primary functions: banning certain PFAS-containing products and gathering information about the prevalence of such products distributed or sold in Minnesota. Beginning January 1, 2025, eleven types of products were banned from sale or distribution if they contained intentionally added PFAS, and beginning January 1, 2032, the ban expands to any products with intentionally added PFAS. The law also allows the Minnesota Pollution Control Agency (MPCA) to gather information about PFAS usage through a new reporting requirement. Manufacturers are required to submit an initial report to the MPCA listing their products offered for sale, sold or distributed in Minnesota that contain intentionally added PFAS. The initial report must include: a description of the product, the reason PFAS was used in the product, the name of the PFAS chemical used and its concentration as well as contact information for the manufacturer.

The deadline for the initial report has been delayed once before to allow the MPCA to finalize the reporting software, PRISM. Since then, the MPCA has finalized PRISM and published guidance for the initial report (available here). Currently, eighteen companies have submitted initial reports and many of those are accessible on PRISM (searchable here).

In certain circumstances and for a fee, manufacturers can request an extension of the September deadline.

Winthrop and Weinstine is closely following the development of the PFAS rulemaking. For more information, please feel free to reach out to any member of our Environmental team.

Hospital Funding May Be a Key to Session-Ending Deal

Hospital funding may be a key component to any end of session deal. There has been significant debate this session regarding stabilizing Hennepin County Medical Center (HCMC) and the state’s financially vulnerable rural hospitals, with proposals aimed at both immediate relief and longer-term sustainability. For HCMC, lawmakers have debated a targeted state appropriation to keep the doors open for another year (which could also include funding for financially strapped hospitals around the state) and longer-term help via an expanded local funding authority. While these are both options that would provide some relief, most acknowledge that these fixes don’t address the causes of the financial crisis, including low Medicaid reimbursement rates and increasing numbers of patients without insurance. Regardless, it is likely that the legislative session won’t end without help for HCMC, and targeted help for other financially vulnerable hospitals may be included as well.

Why is Hospital Funding an Issue?

Hennepin County Medical Center (HCMC) and rural hospitals across Minnesota are facing intensifying financial pressure driven by a fundamental mismatch between the cost of care and how hospitals are paid. As a safety-net provider, HCMC serves a disproportionately high share of patients covered by Medicaid, Medicare, or no insurance at all—groups that typically reimburse below the actual cost of care. At the same time, policy changes and coverage losses are increasing the number of uninsured patients, leaving hospitals to absorb more uncompensated care. Rural hospitals face similar reimbursement challenges but are further constrained by low patient volumes, workforce shortages, and limited access to higher-margin specialty services that could offset losses. Rising labor and supply costs have only widened these gaps, leaving many facilities operating on thin or negative margins.

Compounding these structural issues is growing uncertainty around federal healthcare funding. Recent actions to delay or withhold Medicaid payments, along with longer-term federal policy changes expected to reduce Medicaid spending, are putting additional strain on hospital finances. Even when funding is not directly cut, reductions in coverage lead to fewer insured patients and more unpaid care, effectively diminishing federal support. The result is a steady erosion of financial stability: hospitals are projecting significant long-term losses, some have already reduced services, and a number are at risk of closure without intervention. For both urban safety-net systems like HCMC and rural providers, the current environment reflects not a single shock but an accumulating set of pressures that threaten access to care across the state.

Endgame Uncertainty at the Capitol: Structure, Not Just Substance

This year’s legislative endgame is being shaped as much by structure as by policy and finance differences. The Senate has advanced a full slate of omnibus policy and finance bills, while the evenly split House has moved far fewer, leaving the two chambers misaligned heading into conference committee season. In past sessions, leaders synchronized their approaches early—passing parallel vehicles to streamline negotiations and floor action. That has not happened this year, meaning legislators must now reconcile not only substantive differences in policy, but also the basic question of what the final legislative “vehicles” will look like.

The key issue is whether leaders consolidate priorities into a small number of large omnibus bills or attempt to pass many narrower bills. Fewer, larger packages would be more efficient and help meet looming adjournment deadlines, but they require significant bipartisan agreement—no small feat in a 67–67 House. Alternatively, moving many smaller bills allows for more targeted consensus but creates serious time constraints.

Floor Activity Picks Up

Floor activity picked up this week as the Senate met Monday through Thursday and passed roughly 20 bills, including several omnibus policy measures. Debate varied widely—some bills drew extended, party-line votes, while others moved quickly with little opposition. The House, by contrast, convened Monday and Thursday and focused primarily on broadly supported, noncontroversial legislation, though still managing to pass more than two dozen bills. Behind the scenes, most committees have now wrapped up their regular work for the session, with only a handful still meeting. Those remaining include the Senate Finance Committee and House Ways and Means Committee, which continue to process bills, as well as the tax committees in both chambers as work intensifies toward assembling a final tax package.

Senate Passes Limits on Local Government NDAs

On Monday, as part of the Omnibus State and Local Government bill, the Senate passed new limits on the use of nondisclosure agreements (NDAs) by local governments—which proponents argue will promote greater transparency. Senators Erin Maye Quade and Bill Lieske passed amendments that would prohibit municipalities from entering into agreements that restrict public access to information about development projects, economic development initiatives, or projects involving public funding. The bill also establishes additional transparency requirements for certain large projects, including mandating public disclosures and hearings prior to approval. The Maye Quade/Lieske language would apply to local government elected officials and staff. Senator Grant Hauschild’s compromise amendment was also approved. This amendment would restrict local government elected officials from signing NDAs but exclude staff from this restriction. It is unclear if the NDA language has a path to pass through the tied House.

Minnesota Revenues Fall Short of Forecast

Minnesota collected $3.78 billion in general fund revenues during February and March 2026, falling $182 million, or 4.6 percent, below the state’s February forecast, according to Minnesota Management and Budget. The shortfall was driven largely by weaker-than-expected individual income tax collections, which came in $126 million below projections due to significantly higher refunds. Corporate tax revenues and other revenue categories also underperformed, while sales tax receipts provided a modest bright spot, slightly exceeding expectations. Overall, the variance leaves fiscal year-to-date revenues tracking 0.8 percent below forecast, signaling softer-than-anticipated collections despite relatively stable consumer spending.

Minnesota’s Macroencomic Consultant Predicts Softer Economy in 2026

In its April 2026 forecast, Standard & Poor’s Global Market Intelligence (SPGMI), Minnesota’s macroeconomic consultant, predicted that the U.S. economy has weakened slightly since Minnesota’s February Forecast. Updated forecasts now show U.S. economic growth slowing to 2.1 percent in 2026, with higher inflation, rising unemployment, and sluggish job growth expected to weigh on activity. Analysts point to elevated energy prices, ongoing trade uncertainty, and cooling labor market conditions as key risks. While a recession is not currently projected, the outlook suggests continued pressure on consumer spending and business investment, leaving Minnesota’s budget outlook sensitive to national economic headwinds in the months ahead.

Addressing Impacts of Artificial Intelligence

As artificial intelligence (AI) becomes increasingly ubiquitous in our society, the Minnesota legislature has taken steps to regulate the technology in different ways. For example, it previously passed a law prohibiting use of AI in campaign ads in certain circumstances. During the current legislative session, many bills have been introduced to limit use of AI or mitigate AI’s impact. Despite the good intention of these initiatives, they have created a piecemeal approach to AI regulation. In response, more than two dozen entities sent a letter to Governor Walz and legislative leaders expressing their frustration with this disjointed approach. In addition to calling for a “pause” on AI regulations this session, the groups “urge the Legislature to take a more structured and collaborative approach moving forward…includ[ing] the creation of dedicated AI subcommittees in both the House and Senate with primary jurisdiction over AI-related policy, with mandatory referral for any AI bill.”

Lawmakers Consider Food Shelf Funding

Hunger relief advocates have been warning legislators that Minnesota food shelves are under intense strain as demand reaches historic levels, with nearly 9 million visits annually according to statewide data compiled by The Food Group in partnership with state agencies. As a response, lawmakers are considering proposals to increase funding for the Minnesota Food Shelf Program (MFSP) and provide more direct support to food banks. In the House, H.F. 3624, which is in the Ways and Means Committee, includes approximately $5.4 million in ongoing funding for the MFSP, while funding in the Senate will be added to the Health and Human Services supplemental budget bill. Despite these efforts, advocates say these measures may still fall short, particularly as recent federal SNAP benefit cuts push more families to rely on charitable food programs. With budget constraints and competing priorities complicating the debate, policymakers are confronting a widening gap between need and resources, leaving food shelves as an essential, but increasingly overburdened, safety net.

Partisan Spat over Impeachment

On April 15, the House Rules and Administration Committee held a hearing on Republican-backed resolutions to impeach Governor Tim Walz (and separately Attorney General Keith Ellison), led by GOP Representatives Drew Roach, Ben Davis, and Mike Wiener. The effort centered on allegations that the administration failed to adequately respond to a major fraud scheme and retaliated against whistleblowers, with testimony from Faye Bernstein, a state employee who works at the Department of Human Services. DFLers forcefully disputed the claims, and the committee ultimately deadlocked 8–8 along party lines, preventing the resolutions from advancing and leaving the impeachment effort stalled for now. Matt Gehring, director of House Research, outlined how impeachment works under Minnesota law, noting that impeachment is governed by the state constitution—not statute—with the House holding the power to impeach and the Senate responsible for conducting any trial, requiring a two-thirds vote for conviction.

The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) issued a final rule to codify the elimination of reputation risk from their supervisory programs. The final rule, which becomes effective June 9, 2026, adopts the proposed rule with minor modifications and formalizes in federal regulations the removal of reputation risk. The final rule prohibits the OCC and FDIC from performing the following activities in supervisory programs:

• Criticizing or taking adverse action against an institution on the basis of reputation risk;
• Requiring, instructing, or encouraging an institution to (i) close an account, (ii) refrain from providing an account, product, or service, or (iii) modify or terminate any product or service on the basis of a person or entity’s political, social, cultural, or religious views or beliefs, constitutionally protected speech, or solely on the basis of politically disfavored but lawful business activities perceived to present reputation risk (excluding compliance for persons or entities sanctioned by the Office of Foreign Assets Control); and
• Taking any supervisory action or other adverse action against an institution, a group of institutions, or the institution-affiliated parties of any institution that is designed to punish or discourage an individual or group from engaging in any lawful political, social, cultural, or religious activities, constitutionally protected speech, or, for political reasons, lawful business activities that the agencies or its personnel disagree with or disfavor.

The final rule defines reputation risk to mean “any risk, regardless of how the risk is labeled by the institution or regulators, that an action or activity, or combination of actions or activities, or lack of actions or activities, of an institution could negatively impact public perception of the institution for reasons not clearly and directly related to the financial or operational condition of the institution.”

The final rule broadly defines “adverse action” to include:

• Any negative feedback delivered by or on behalf of the OCC to the supervised institution, including in a report of examination or a formal or informal enforcement action;
• A downgrade, or contribution to a downgrade, of any supervisory rating, including, but not limited to:
  • Any rating under the Uniform Financial Institutions Rating System (or any comparable rating system);
  • Any rating under the Uniform Interagency Consumer Compliance Rating System;
  • Any rating under the Uniform Rating System for Information Technology; and
  • Any rating under any other rating system;
• A denial of a licensing application;
• Inclusion of a condition on any licensing application or other approval;
• Imposition of additional approval requirements;
• Any other heightened requirements on an activity or change;
• Any adjustment of the institution’s capital requirement; and
• Any action that negatively impacts the institution, or an institution-affiliated party, or treats the institution differently than similarly situated peers.

The prohibition on the use of reputation risk is codified in 12 C.F.R. § 4.91 for the OCC and 12 C.F.R. § 302.100 for the FDIC.

The OCC and FDIC cite the following reasons, among others, for the prohibition:

• Using reputation risk as a basis for supervisory criticisms increases subjectivity and unpredictability without adding any material value from a safety and soundness perspective
• No clear evidence shows that supervisory interference to protect the banks’ reputations has actually protected banks from losses or improved banks’ performance
• Institutions and agencies should devote resources to managing concrete and quantifiable financial risks that have been shown to present significant threats to institutions, such as credit risk, liquidity risk, and interest rate risk
• Reputation risk does not predict bank failures.

The Federal Reserve Board (the Board) issued a notice of proposed rulemaking to codify the removal of reputation risk from the Board’s supervisory programs in February with comments due by April 27, 2026 that includes a general prohibition on the use of reputation risk in 12 C.F.R. § 262.9. We expect the Board’s final rule to include similar language from the FDIC and OCC’s final rule.

In 2025, the federal agencies signaled that these changes were coming. On March 20, 2025, the OCC removed reputation risk from its Comptroller’s Handbook booklets and guidance issuances and instructed its examiners that they should no longer examine for reputation risk. In a March 24, 2025 letter to the U.S. House Subcommittee on Oversight and Investigations, Acting FDIC Chairman Travis Hill stated that the FDIC has reviewed all mentions of reputational risk in regulation, guidance, examination manuals and other policy documents and planned to eradicate reputation risk from the FDIC’s regulatory approach. On June 23, 2025, the Board announced that reputational risk would no longer be a component of its bank examinations.

The removal or reputation risk from examinations is a positive development for the banking industry and will enable banks to focus on measurable risks.

Please reach out to Winthrop & Weinstine’s Banking Regulatory team if you have any questions about this final rule or regulatory compliance.

All banks operating in Minnesota must be aware of the recent decision in United Prairie Bank v. Molnau Trucking LLC. In that case, the Minnesota Supreme Court significantly reshaped the priority landscape between secured lenders and sureties in the public construction market. In brief, the Court held that a performing surety’s rights take priority over a bank’s perfected security interest in contract funds—even where the bank was first-in-time under the UCC.

For banks lending to contractors, this decision highlights a new material and underappreciated risk when borrowers engage in bonded public works projects.

Background Facts

The facts of the case are fairly straightforward: Molnau Trucking obtained loans from the secured bank, granting the bank a perfected security interest in its accounts receivable. Separately, Molnau entered into public works contracts requiring payment bonds issued by a surety (Granite Re, Inc.). When Molnau defaulted on both its loan obligations and its obligations to pay subcontractors and suppliers, Granite paid those claims under its bonds.

A dispute arose over remaining contract funds (including retainage). The bank claimed priority under its first-in-time perfected UCC security interest; the surety claimed priority through “equitable subrogation.”

Key Holdings

The Minnesota Supreme Court ruled in favor of the surety, holding:

• A performing surety is entitled to equitable subrogation regardless of its notice or failure to investigate UCC filings;
• A surety’s rights have priority over a secured lender over bonded contract funds, absent a “superior equity.”

The Court emphasized that a surety, having paid laborers and suppliers under compulsion of its bond, steps into the shoes of those parties (and the project owner), giving it rights superior to a lender whose claim derives only from the contractor.

The “Superior Equity” Exception

Not all is lost, though. The Supreme Court reaffirmed a narrow exception under which a lender may still prevail—often referred to as the “superior equity” scenario. A bank can obtain priority over a surety only if it effectively acts like a surety, meaning:

• The bank is obligated (not merely permitted) to advance funds;
• The funds are specifically earmarked for payment of laborers and suppliers; and
• The funds are actually used solely for those purposes.

General working capital loans—even if partially used on a bonded project—are insufficient. Thus, a bank must be able to document and prove the above requirements to meet the “superior equity” exception.

Practical Takeaways for Banks

This decision introduces meaningful priority risk for lenders financing contractors engaged in public works. Banks should consider the following risk-mitigation strategies:

• Loan documents should require borrower disclosure of bonded public projects and restrict entry into such projects without lender notice and consent.
• Where public projects are anticipated:
  • Engage with the surety at underwriting or project inception;
  • Seek subordination or intercreditor agreements where feasible;
  • Clarify expectations around contract funds and priority.
• If financing project costs:
  • Tie advances to specific obligations (labor/material payments);
  • Require segregation and tracing of funds;
  • Consider mechanisms (e.g., controlled disbursements) ensuring funds are used solely for bonded obligations.
• Accounts receivable arising from public works projects may be impaired or effectively unavailable as collateral in a default scenario. Thus, banks should require:
  • Affirmative reporting of bonded contracts and claims activity;
  • Restrictions on assignment of contract proceeds;
  • Enhanced monitoring of receivables tied to public entities.
• Given diminished priority, banks may need to rely more heavily on:
  • Equipment, real estate, or non-project collateral;
  • Guarantees or additional credit enhancements.

Summary

The Supreme Court’s decision underscores that traditional UCC-based priority assumptions do not hold in the public construction surety context, except in very narrow circumstances as discussed above. For lenders and credit officers, diligence, structuring, and coordination with sureties or underwriting to not include bonded A/R in certain situations are now critical to preserving expected collateral value and properly evaluate the credit at origination.

Banks navigating these issues after origination should work closely with experienced counsel to evaluate risk, collateral exposure, and overall credit structure to avail themselves of the exception identified by the Supreme Court—or contract and/or underwrite around it.

Where Are the Budget Targets?

With the House and Senate approaching the April 17 third committee deadline for finance bills, it is highly unusual that neither the House nor Senate has released committee budget targets. Budget targets are benchmarks that typically guide omnibus bill construction and signal caucus priorities. In most years, targets are distributed well in advance of the third committee deadline to give committees time to assemble and reconcile spending bills. The absence of targets this late in the process creates significant uncertainty at the Capitol.

The delay comes despite Minnesota entering the session with a positive near-term fiscal outlook. The latest Minnesota Management and Budget forecast projects a roughly $3.7 billion surplus for the current FY 2026–27 biennium, providing some flexibility for policymakers, while the out-biennium (FY 2028–29) shows only a modest balance of about $377 million and an ongoing structural imbalance that continues to concern budget officials.

Is HCMC Too Big to Fail?

The Hennepin County Medical Center (HCMC) debate in the 2026 Session centers on whether and how the state should intervene to prevent the potential collapse of a financially distressed but critical “safety-net” hospital. On Thursday, the House Taxes Committee considered HF 4841, a bill aimed at stabilizing HCMC by redirecting and expanding the existing Hennepin County sales/ballpark tax from 0.15% to a full 1%. The new revenues would generate significant new revenue to support hospital operations.

Supporters said the measure is needed to address a growing financial crisis at HCMC, the state’s primary safety-net hospital and busiest trauma center, which faces ongoing operating losses driven by uncompensated care and Medicaid funding pressures. Testifiers emphasized the hospital’s statewide role in providing care, training healthcare workers, and supporting rural systems, warning that failure to act could jeopardize access to critical services. While lawmakers from both parties acknowledged the urgency, some raised concerns about the scale of the tax increase and the need for accountability or internal reforms alongside new funding. The bill was laid over as discussions on an omnibus tax bill continue.

Capital Investment Committees Continue Work

With the 2026 Legislature returning from its Easter/Passover recess, the House and Senate Capital Investment Committees continued hearing bills this week. The challenge these committees have is agreeing on a bipartisan borrowing package to fund significant statewide infrastructure needs amid competing priorities and fiscal constraints. Demand for funding is extremely high—total project requests approach $6–7 billion—while the Governor has proposed a much smaller package of roughly $900 million. While it is unclear what size of bill will pass, comments from capital insiders suggest a final bill closer to about $1 billion, if one passes at all.

Bonding bills require a 60% supermajority, forcing cooperation in a politically divided, election-year legislature, which historically makes negotiations difficult and uncertain. The debate is further shaped by urgent infrastructure needs (e.g., water systems, transportation, and asset preservation backlogs) and competition among local projects, creating tension between widespread demand for investment and the limited borrowing capacity and political will to approve it.

Senate Energy Committee Debates Nuclear Power

The Senate Energy, Utilities, Environment, and Climate Committee on Wednesday, April 8, took up the omnibus energy bill but laid it over after a contentious debate over a nuclear power study. The study would focus on whether Minnesota should revisit its longstanding restrictions on new nuclear energy development. Supporters framed the study as a pragmatic, forward-looking step to assess nuclear energy’s potential role in delivering reliable, carbon-free power amid rising electricity demand and concerns about grid stability. Opponents, however, warned that even studying the issue could signal a shift toward reopening the door to expensive and controversial nuclear projects, arguing the state should remain focused on expanding renewable energy and storage instead. The Committee will reconsider the bill on Monday, April 13.

Bills to Ban Prediction Markets Heard in House and Senate

Minnesota lawmakers are moving forward with legislation to prohibit prediction market platforms, with hearings held in both the House Commerce Committee and Senate State Government Committee on Thursday. The companion bills, HF 4437/SF 4511, would classify event-based trading—where users wager on outcomes like elections, sports, or public policy decisions—as illegal gambling, and would extend liability to operators and promoters. The proposals reflect growing concern that these platforms are operating as unregulated sportsbooks without consumer protections. Supporters argue the measures are necessary to close a regulatory gap and prevent expansion of quasi-gambling products, while opponents warn the bans could conflict with federal oversight and face legal challenges. SF 4511 advanced to the Senate Commerce Committee while HF 4437 was laid over in the House Commerce Committee.

Earlier this month, the FTC released updated text of the Fair Credit Reporting Act (FCRA), which compiles the complete text of the FCRA, including all amendments, into one document to assist users and furnishers of consumer reports with compliance. The document was revised to include the Homebuyers Privacy Protection Act’s (Public Law 119-36) requirements in Section 604 on pages 17 and 18, which went into effect earlier this month. The Act was implemented to prevent consumer reporting agencies from selling consumer reports to third parties for mortgage trigger leads, as such practice results in excessive and unwanted loan solicitations to consumers.

The Act includes the following limitations on requests for prescreening reports:

“If a person requests a consumer report from a consumer reporting agency in connection with a credit transaction involving a residential mortgage loan, that agency may not, based in whole or in part on that request, furnish a consumer report to another person under this subsection unless—

• the transaction consists of a firm offer of credit or insurance; and
• that other person—
  • has submitted documentation to that agency certifying that such other person has, pursuant to paragraph (1)(A), the authorization of the consumer to whom the consumer report relates; or
  • has originated a current residential mortgage loan of the consumer to whom the consumer report relates; or
  • is the servicer of a current residential mortgage loan of the consumer to whom the consumer report relates; or
  • is an insured depository institution or credit union and holds a current account for the consumer to whom the consumer report relates.”

This Act is a reminder for financial institutions to review their FCRA policies and procedures to ensure that such documents require that they have a permissible purpose for every consumer report that they obtain and that they do not furnish reports to another person unless such person has a permissible purpose to obtain the report.  In particular for those organizations engaged in mortgage lending, now is a good time to review policies and practices as it relates to the use of consumer reports in the organization’s mortgage operations.

Please reach out to Winthrop & Weinstine’s regulatory team if you or your organization has any questions about compliance with the FCRA.

Legislature Reaches First and Second Bill Deadline

The first and second committee deadline today (Friday) marks a key milestone in the 2026 legislative session. By this date, most policy bills must clear committees or risk being set aside for the year. These deadlines help narrow the field of proposals, allowing lawmakers to focus on the bills with real momentum and begin shaping broader omnibus legislation ahead of the upcoming third deadline for major appropriation and finance bills on April 17. The Legislature is on its Easter/Passover recess beginning at 5:00 pm on Friday, March 27, and returning on Tuesday, April 7.

What’s Next

Work on a supplemental budget will begin in earnest after the Easter/Passover break. With a projected $3.7 billion surplus for FY 26–27 and a much smaller surplus of $377 million in FY 28–29, DFLers and Republicans are expected to debate competing interests, including tax relief, targeted investments, capital expenditures and long-term fiscal stability. The narrower FY 28-29 balance is likely to shape a more cautious approach to new spending commitments. Leadership in both chambers, along with Governor Tim Walz, will play a key role in negotiating a final agreement before adjournment.

Senate Approves Rule Change Allowing Children on Floor

After a lengthy—and, at times, emotional—debate on Wednesday, the Minnesota Senate voted 41–25 to change its rules to allow senators to bring their children onto the Senate floor during sessions. The proposal gained momentum after Senator Clare Oumou Verbeten was asked to leave the chamber with her infant, prompting a bipartisan push led by Senators Julia Coleman and Erin Maye Quade to make the workplace more accommodating to parents. Supporters argued the change reflects the realities of long legislative hours and limited childcare, sharing personal stories about balancing public service and parenting, while framing the move as a step toward making elected office more accessible. Opponents raised concerns about decorum, distractions, and fairness, suggesting alternatives such as nearby childcare or remote participation, and unsuccessfully proposed limits on children’s ages and a sunset provision. The final rule, which allows children of any age with leadership approval, took effect immediately, with supporters calling it overdue modernization and critics warning of potential impacts on chamber operations.

Repeal of César Chávez Day Receives Rare Unanimous Vote in House and Senate

Minnesota lawmakers are moving quickly to repeal the state’s César Chávez Day designation, reflecting one of the fastest-moving and most highest-profile issues of the 2026 session. Following recent allegations against Chávez, the House and Senate this week unanimously passed repeal legislation with leaders aiming to finalize the bill before the March 31 holiday. The bill now goes to Governor Tim Walz who is expected to sign the bill.

“Ghost Gun” Ban Stalls in House

HF 3407, a bill to ban “ghost guns,” was heard in the House Public Safety Finance and Policy Committee this week and failed on a 10-10 tie vote with DFLers voting in favor of the bill and Republicans voting against. The bill sought to prohibit the manufacture, possession, and transfer of firearms lacking serial numbers and to regulate unfinished frames and receivers. Proponents argue HF 3407 would enhance public safety by closing regulatory gaps around unserialized firearms, making weapons more traceable and limiting access to guns that can currently be obtained without background checks. Opponents contend the bill could infringe on Second Amendment rights and impose burdens on lawful gun owners and hobbyists, while raising concerns about enforceability and the regulation of digital design files. The Senate’s version of the “ghost guns” bill, SF 3661, passed the Judiciary Committee and is awaiting action on the Senate Floor.

The legislature will be on break next week, so stay tuned for the next Legi Top 5 on April 10, 2026.