Legislature Reaches Full Complement—

For about three days this week, all 201 legislative seats, 134 House members and 67 Senators, were filled for the first time in 2025. The week began with David Gottfried, the winner of the 40B special election, being sworn into the House on Monday. Gottfried’s swearing in brought the House to a 67-67 tie and triggered the Power Sharing agreement between House Republicans and DFLers signed on February 5. Under this agreement, the DFL was restored to parity on all House committees, except the Fraud Prevention and State Agency Oversight Policy Committee, and committee gavels began rotating between Republican and DFL Committee Chairs.

—But Only for a Few Days

While the week began with a new member of the Legislature, it ended with the resignation of another. Senator Justin Eichorn (R-Grand Rapids) was arrested in Bloomington about two hours after Rep. Gottfried was sworn in. He has been charged in federal court with attempted coercion and enticement of a minor after he allegedly tried to solicit sex from a 17-year-old girl who turned out to be an undercover Bloomington police officer. Sen. Eichorn resigned approximately an hour before the start of Senate floor session on Thursday in which the Senate was poised to vote to expel him. With Eichorn’s resignation, the DFL holds a two-seat majority, 34-32. There is no word yet on when a special election to replace him will be held.

Governor Walz Townhall Tour (and a Supplemental Budget)

For the past week, Governor Tim Walz has been travelling to other states holding townhall-style meetings in Republican Congressional districts where the respective member of Congress is not holding townhalls. Minnesota Republicans and the media have been quick to criticize him—Republicans stating that he should be more concerned about taking care of Minnesota, and the media wishing that he would hold media availability in Minnesota. Both will get their wish, as Gov. Walz is set to release his supplemental budget proposal today and will hold his first townhall since being elected Governor on Saturday in Rochester.

High Number of Hopeful Cannabis Licensees

Over the weekend, the Office of Cannabis Management (OCM) closed the application window for the first round of licenses, including both social equity and general license applications that were submitted in the past month. Between the 10 license types available, OCM received more than 2,000 applications, including 1,322 applications for microbusinesses. While four of the license types have caps on the overall number of licenses that can be granted, the microbusiness license, which allows for a vertically integrated business from seed to sale, is not capped. The legislature continues to consider legislation to tweak the fledgling industry.

Calendar Reminders

With just two weeks remaining before the first and second committee deadlines, we thought a reminder of important upcoming dates would be helpful:

• March 29-31: Legislative Break, Eid
• April 1: House plans to release budget targets by this date
• April 4, 5:00 p.m.: First and Second Committee Deadline (Policy)
• April 5: Senate plans to release budget targets by this date
• April 11, 12:00 noon: Third Committee Deadline (Major appropriation and finance bills)
• April 12-21: Legislative Break, Passover and Easter (Break ends at noon on Monday, April 21)
• May 19: Last day of the legislative session
• July 1: Government shutdown begins if new budget isn’t enacted

DFL Wins 40B Special Election

The most important event impacting the State Capitol this week occurred in parts of Roseville and Shoreview, where DFLer David Gottfried defeated Republican Paul Wikstrom by almost 6,000 votes in Tuesday’s District 40B special election. Gottfried is expected to be sworn in on Monday, March 17, at which time the House will be tied at 67-67 and will be at full strength for the first time in 2025. Beginning next week, DFLers and Republicans will co-chair all House committees except the Fraud Prevention and State Agency Oversight Policy Committee, which will continue to be chaired by Rep. Kristin Robbins (R – Maple Grove) and maintain a 5-3 Republican majority. Bills will also need to have bipartisan support to be approved by committees and move to the House floor, where 68 votes are needed for passage.

State Collects More Revenue 

With the ink not even dry on the February Forecast issued late last week, Minnesota Management and Budget (MMB) on Monday, March 10, announced that February revenue collections exceeded the February Forecast by $116 million. Net receipts from individual income, corporate franchise, and other taxes were above forecast, and net sales tax revenues were below.  While good news, this new $116 million was not recognized in the February Forecast and cannot be considered when crafting the upcoming biennial budget.

Ethics Panel Deadlocks Again

The ongoing saga stemming from a criminal complaint against Sen. Nicole Mitchell (DFL – Woodbury) continued at the legislature this week. Nearly a year ago, Sen. Mitchell was arrested inside her stepmother’s house, leading to charges of burglary. Since that time, she has faced pressure from her colleagues to step down from her role as a state senator. While she no longer serves on any committees, she is still allowed to vote on floor actions. The latest ethics allegation against her stems from her casting the tie-breaking vote on a procedural motion that effectively stopped the Senate from voting on her possible expulsion. Republicans claimed this resulted in a conflict of interest. Following discussion, no action was taken on the Ethics Committee complaint, as the members deadlocked on how to proceed.

Non-Compete Discussion Repeat

The House Workforce, Labor and Economic Development Committee met on Thursday, March 13, to advance a bill allowing non-compete provisions in certain circumstances. H.F. 1768, authored by Rep. Harry Niska (R – Ramsey), would make exceptions to Minnesota’s ban on non-competes for employees who meet an income threshold and whose duties include “creation, analysis or modification of confidential, proprietary, or trade secret information,” or employees with an “annual budgeted compensation of $500,000 or more regardless of the employee’s primary job duties.” The bill was passed out of committee and sent to the General Register where it is ready for a vote by the full House. There is no companion bill in the Senate.

Normal Enough to Care About State Fossil, Constellation

The House State Government Committee met this week with bills on the agenda to add to the list of various Minnesota state symbols. While some bemoan such legislative action, similar bills are brought forward nearly every year, and this year it seems to symbolize that the Minnesota Legislature is functioning normally following a very abnormal start. Specifically, the House heard legislation to designate both the giant beaver as the state fossil and Ursa Minor as the state constellation. Both bills are sponsored by Rep. Andrew Myers (R – Tonka Bay), have bi-partisan authors, and were laid over for possible inclusion in an omnibus bill.

Minnesota is on the verge of a historic tax policy change that could reshape the professional services landscape. Under Governor Tim Walz’s proposed $65.9 billion budget for 2026-2027, the state aims to lower the sales tax rate from 6.875% to 6.8%—but at a cost. The plan seeks to expand the sales tax base to include professional services, meaning law firms, accounting firms, financial advisors, and consulting agencies may soon face tax obligations they’ve never had before. However, business-to-business (B2B) transactions remain exempt under the proposal, meaning firms that primarily serve corporate clients may not be directly impacted.

Who Is Most Affected?

If your business provides direct-to-consumer professional services in Minnesota, this change could significantly impact your bottom line. Industries that stand to be most affected include:

• Legal Services: Law firms handling personal injury, estate planning, family law, and other consumer-focused legal matters.
• Accounting & Tax Preparation: CPAs and tax professionals serving individuals and small business owners.
• Financial Planning & Investment Advisory: Firms offering retirement planning, wealth management, and investment advice.
• Real Estate & Mortgage Brokerage: Services tied to home buying, mortgage origination, and residential real estate transactions.
• Certain Banking Services: Consumer-focused financial transactions not currently subject to sales tax.

Why Now?

The proposed tax expansion is projected to raise $205 million in new revenue, partially addressing an anticipated $5.1 billion state budget shortfall for 2028-2029. The budget also includes spending cuts in areas like Medicaid and special education reimbursements, signaling that broader fiscal challenges may drive further tax policy changes.

Sales Tax Nexus – Who Must Collect?

Businesses must collect and remit sales tax in Minnesota if they establish a nexus through either physical presence or economic activity:

• Physical Nexus: A business has a physical presence in Minnesota if it maintains a location, employs sales representatives, leases property, or delivers goods using company vehicles.
• Economic Nexus: Out-of-state businesses must collect sales tax if they have 200+ retail sales or over $100,000 in Minnesota sales within a 12-month period.
• Marketplace Providers: Online platforms facilitating sales and processing payments must collect sales tax if they meet physical or economic nexus thresholds.

Sales Tax Sourcing – How Will Tax Be Applied?

Minnesota follows destination-based sourcing, meaning tax applies based on where the customer receives the benefit:

• Services provided to Minnesota-based clients may be taxable, regardless of where the provider is located.
• Services delivered to out-of-state clients may remain untaxed if the benefit is received outside Minnesota.
• Multi-state engagements require careful analysis to determine taxability.

What Service Providers Need to Consider Now

Even though this proposal is still under legislative review, professional service providers should start assessing their potential exposure:

• Client Impact: A new tax could increase costs for clients, affecting pricing strategies and client relationships.
• Compliance Readiness: Service providers operating in Minnesota should evaluate whether they would be required to collect and remit sales tax.
• Contract Review: Businesses may need to update agreements to account for potential tax implications, particularly for multi-state engagements.

Next Steps

While this proposal is still under debate, businesses should stay ahead of potential changes. Understanding the impact now will help ensure compliance if the law moves forward. We are closely monitoring developments and will continue to provide updates as the legislative process unfolds. If you have questions about the proposal or how the expansion may affect your business, please feel free to reach out to any member of our Tax team.

Minnesota Management and Budget (MMB) delivered the delayed February budget and economic forecast today. While MMB projects a $456 million surplus for the FY 2026-27 biennium, this projected surplus is now $160 million lower than estimates from the November forecast. In a statement, MMB said the “budget outlook has been adjusted downward amid significant near-term economic and fiscal uncertainty” and that “higher forecast inflation results in increases in projected revenues and expenditures”.

The projected deficit for the FY 2028-2029 biennium has grown to $5,995 billion, $852 million worse than November estimates. MMB stated further in its statement that “shifting policies at the federal level introduce significant uncertainty to the projections”.

The forecast provides a detailed update of the state’s financial health that sets the stage for lawmakers to develop a biennial budget for the FY 2026-2027 biennium.

Providers who offer telehealth services to Medicare patients take note: many key telehealth flexibilities that have been in effect since the COVID-19 public health emergency will expire on March 31, 2025. These changes are crucial for both healthcare providers and patients to understand, as they impact the availability of telehealth services for Medicare patients. Below please find some key takeaways from recent congressional updates and policy changes.

What’s Changing?

The following pre-Covid-19 restrictions will be reinstated as of April 1, 2025:

• Home-Based Telehealth Services: The physical location of the patient once again matters. Providers will need to ensure that only approved services are provided via telehealth to patients physically located at approved originating sites. Other than for behavioral/mental health care, treatment for substance use disorder (SUD), and a few other specific exceptions, a patient’s home is unlikely to be a Medicare-approved originating site.
• Geographic Restrictions: Providers will also need to confirm that the geographical location of the patient qualifies for Medicare reimbursement of telehealth services. For example, under Medicare’s pre-pandemic rules, originating sites must be located in a rural Health Professional Shortage Areas (HPSA) or in non-Metropolitan Statistical Areas (non-MSA county), or participating in a telemedicine demonstration project. These requirements will again take effect starting April 1, 2025.
• Exceptions: There are no geographic restrictions for SUD treatment, mental health services, home dialysis for ESRD patients, or diagnosis and treatment of acute stroke.
• Provider Eligibility: All eligible Medicare providers can offer telehealth services through March 31, 2025. The telehealth expansion provided qualified occupational therapists, physical therapists, speech-language pathologists, and audiologists with temporary dispensation to bill for telehealth services. Starting April 1, 2025, these providers will no longer be able to bill Medicare for telehealth services. Instead, only physicians and practitioners (as defined by federal law) will have these privileges.
• In-Person Visit Requirements: An in-person visit within six months of an initial Medicare behavioral/mental telehealth service, and annually thereafter, will once again be required. For FQHCs and RHCs, this requirement is waived until January 1, 2026.
• Audio-Only Services: With the exception of behavioral/mental telehealth services, Medicare will no longer cover audio-only communication platforms to deliver telehealth services after March 31, 2025.

What’s Not Changing?

The following telehealth policies for behavioral and mental health services have been made permanent:

• Home-Based Behavioral Health Services: Medicare patients can permanently receive telehealth services for behavioral/mental health care in their homes.
• Geographic Restrictions: There are no geographic restrictions for originating sites for Medicare behavioral/mental telehealth services, and FQHCs and RHCs can permanently serve as a Medicare distant site provider for behavioral/mental telehealth services.
• Audio-Only Communication: Behavioral/mental telehealth services in Medicare can permanently be delivered using audio-only communication platforms.
• Provider Eligibility: Marriage and family therapists and mental health counselors can permanently serve as Medicare distant site providers.

Keep an Eye on Controlled Substances

The Drug Enforcement Administration (DEA), jointly with the Department of Health and Human Services (HHS), has extended the full set of telemedicine flexibilities regarding the prescribing of controlled medications as were in place during the COVID-19 public health emergency, through December 31, 2025. Additionally, on January 16, 2025, the DEA (in conjunction with HHS) announced two final rules and a notice of proposed rulemaking to make permanent some temporary telemedicine flexibilities established during the COVID-19 public health emergency while also establishing new patient protections, including certain registration exemptions for U.S. Department of Veterans Affairs practitioners, an expansion of buprenorphine treatment via telehealth, and requiring online telemedicine platforms to register with the DEA.

Congressional Extensions and Expirations

At the end of 2024, Congress extended many of the above Medicare telehealth flexibilities through March 31, 2025, but some key provisions already expired on December 31, 2024, including first-dollar coverage of telehealth services under high deductible health plans (HDHPs) and health savings accounts (HSAs).

This summary addresses some key changes that will take effect on April 1, 2025, but is not an exhaustive list of updates or advice on any specific situation. Unless Congress steps in to further extend telehealth flexibilities established during the Covid-19 pandemic, numerous federal Medicare telehealth waivers will be affected. In addition, various exceptions may apply, depending upon the type of service, type and location of the provider, and other factors.

If you have specific questions about these changes or their potential impact on your practice, please feel free to reach out to the attorneys listed below.

Recent Developments

The Financial Crimes Enforcement Network (FinCEN) has reinstated the beneficial ownership information (BOI) reporting requirements under the Corporate Transparency Act (CTA).  Following recent court decisions, the deadline for compliance has been extended to March 21, 2025.  This extension provides additional time for companies to file their initial, updated, or corrected BOI reports.

Background: How We Got Here

The CTA, bipartisan legislation enacted in 2021, aims to combat illicit activities such as tax fraud, money laundering, and terrorism financing by requiring certain U.S. businesses to disclose beneficial ownership information.  The CTA has been the subject of many lawsuits.  Several courts have held that the CTA is constitutional.  However, a few courts initially granted injunctions prohibiting the enforcement of CTA, including, e.g., the U.S. District Court for the Eastern District of Texas in the cases of Texas Top Cop Shop, Inc. v. Bessent and Smith v. U.S. Department of the Treasury. These injunctions delayed the implementation of the BOI reporting requirements.

However, in early 2025, the Supreme Court stayed the nationwide preliminary injunction in Texas Top Cop Shop. Subsequently, other courts stayed the injunctions prohibiting enforcement.  FinCEN has now confirmed its intention to proceed with the CTA’s requirements, extending the reporting deadline for most companies to March 21, 2025.

Updated Reporting Timelines

• New Entities: Newly formed nonexempt reporting companies must file their initial BOI reports within 30 days of formation.
• Updates to Prior Reports: Any updates to previously filed reports are due within 30 days of the change.
• Entities with Lapsed Deadlines: Companies with initial or updated reporting deadlines that passed during the injunction period now have until March 21, 2025, to file their BOI reports.
• Extensions: Companies that qualified for extensions, such as disaster relief, should adhere to their extended deadlines.
• Exemptions: Plaintiffs in National Small Business United v. Yellen, including members of the National Small Business Association as of March 1, 2024, currently are not required to report. But, note that the U.S. Government has asked this court to lift its injunction in light of the U.S. Supreme Court’s and other courts’ decisions.

What Comes Next?

FinCEN will consider further revisions to the BOI reporting requirement deadlines, potentially granting additional extensions for entities to file updates.  FinCEN also plans to review and revise the CTA’s BOI reporting regulations in 2025 to reduce the burden on lower-risk entities, including many U.S. small businesses.  Ongoing litigation and legislative actions may further impact future reporting requirements.

Key Takeaways:

• Extended Deadline: Most companies must report by March 21, 2025, to comply with the BOI reporting requirements.
• Compliance is Mandatory: Despite the previous extensions, companies should prepare to meet the new deadlines. Currently, there is no indication of further delays.
• Seek Professional Guidance: Given the complexities of the CTA, businesses are advised to consult with knowledgeable advisors, such as attorneys or accountants, to ensure compliance.
• Stay Informed: Continue to monitor updates from FinCEN and other relevant authorities for potential future developments.

For more information on the Corporate Transparency Act and how it affects your business, please visit FinCEN’s website or consult with your legal advisor.

Back to Business

This past week was the first full week that all legislators were present and working in St. Paul. The House of Representatives has been playing catch-up, quickly introducing 786 bills over just three days on the floor. While the Senate has already introduced 1,417 bills, it took them 11 days to do so. Committees are also fully up and running, and while some are still providing overviews of committee jurisdiction, bills are beginning to move through the legislative process.

Big Week for Cannabis and Gaming

Minnesota is home to eleven tribal communities, and this week they were front and center on two separate political issues:

First, drafts of long-awaited tribal compacts regarding the opening of the adult-use cannabis market were made public early in the week. Many were surprised at what they viewed as the expansive nature of the tribes’ ability to play a role in the new market. While many support this, others do not.

Later in the week, the Senate held its first hearing for the legislative session on sports betting. While this subject has been in the works for several years, issue leaders were hopeful that they had finally found an agreement between the primary parties, including the tribes, with sufficient legislative support to be signed into law. Thus, there were several surprised faces when the bill stalled in Thursday’s Senate State and Local Government Committee on a tie vote.

Permitting Reform Bill Advances in House

The House Environment and Natural Resources Finance and Policy Committee Thursday passed a Republican-sponsored bill, HF 8, which aims to reform existing environmental and resource management permitting processes. The bill passed on a party-line vote and will be heard next week in the House Workforce, Labor, and Economic Development Finance and Policy Committee. Rep. Josh Heintzeman (R-Nisswa), the author of the bill, said the bill would modernize existing regulatory systems and make them more efficient while still protecting the environment.  DFL members expressed concerns with the changes and argued that they will harm the environment.  Details of the bill can be found here.

Open U.S. Senate Seat

The 2026 political season officially began on Thursday when U.S. Senator Tina Smith (DFL) announced that she would not be running for re-election. Within minutes, Lt. Governor Peggy Flanagan announced that she was considering running for the seat. Subsequently, many potential candidates from both political parties have either directly expressed or hinted at interest in throwing their hat in the ring, including Governor Tim Walz. 2026 is poised to be an exciting year, with all legislative candidates on the ballot, in addition to an open U.S. Senate seat, and possibly open Congressional seats, along with Governor, Attorney General and Secretary of State.

Legislative Calendar Updates

• March 6: MMB February Budget Forecast released
• March 11: Special Election for HD40B
• March 17: Anticipated swearing in for winner of HD40B election
• April 12-21: Legislative Break
• Likely April TBD: Legislative Deadlines
• May 19: Last day of the legislative session
• July 1: Government shutdown begins if new budget isn’t enacted

This morning Judge Eric Tostrud in the District of Minnesota issued an order in the case captioned Minnesota Chamber of Commerce v. John Choi, et al permanently enjoining certain provisions found in Minnesota Statute 211B.15 (“statute”).

The enjoined statute was passed by the Minnesota legislature in 2023 and prevented entities who had a single foreign investor with a 1% interest or an aggregate of foreign investors holding 5% interest from making any independent expenditures or contributions. Minn. Stat. 211B.15, subd. 4a. The enjoined statute had the effect of preventing numerous corporations and limited liability companies from engaging in political speech through independent expenditures or contributions.

The Minnesota Chamber of Commerce brought a legal action challenging the statute as unconstitutional alongside a motion for a preliminary injunction. The Court granted the preliminary injunction in December 2023. Now over a year later, on motions for summary judgment the Court has permanently enjoined the statute. In doing so, the Court determined that the statute violated the First Amendment right to free speech. Specifically, the Court acknowledged that the State has a compelling interest to prevent foreign influence in its elections but concluded that the statute was not narrowly tailored to accomplish that interest. The Court relied on the State’s lack of any evidence demonstrating an instance where an entity was influenced by a foreign investor to make a political expenditure or contribution.

The Court’s order permanently enjoins enforcement of Minnesota Statutes 211B.15 subdivisions 1(b), 1(d), 1(e), 4a, 4b, the reference to “4a” in subdivision 7b(2), and any related rules and regulations. The Court’s order also enjoins Minnesota’s Campaign Finance and Public Disclosure Board and Ramsey County Attorney John Choi from pursuing civil or criminal liability for violations of the statute.

House Organizes (Finally!)

After more than three weeks of Democrat members boycotting session to deny quorum and multiple lawsuits playing out in the Court system, the DFL and GOP leaders of the Minnesota House of Representatives penned an agreement on Wednesday night regarding organization of the House. Key points of the agreement, which was approved by the entire body (during the first official session with a quorum!), include:

• Lisa Demuth (R-Cold Spring) will be Speaker for the entire biennium (no co-Speaker);
• Representative Brad Tabke (DFL-Shakopee) will be seated, but his election will be reviewed by the House Ethics Committee;
• Republicans will chair committees until the House reaches a 67-67 tie (expected by approximately March 17), at which point committees will have co-chairs;
• All committees will have equal party representation, but the DFL will designate one member of each committee as a non-voting member until the House is tied, at which point they will be able to vote; and
• The one exception to the above committee structure is a newly created committee on fraud, which will have a 5-3 Republican majority and a Republican Chair for the duration of the biennium.

The House officially gaveled in at 3:30 p.m. on Thursday (2/6), with committees set to begin holding hearings as early as 8:15 a.m. on Monday morning.

Senate Reorganizes

 As we mentioned last week, the Senate has a new member, Doron Clark (DFL-Minneapolis), who was sworn in on Monday, returning the Senate DFL to a 34-33 majority. As expected, that same day the Senate voted to end its power-sharing agreement with Senate Republicans, and Erin Murphy (DFL-St. Paul) was re-elected as Majority Leader. Additionally, committees were re-structured to provide a DFL majority and a DFL chair for each. Despite the formal change, many DFL chairs continued to allow Republicans to lead committee work.

House Special Election Scheduled

A special election to fill the vacant seat in the House of Representatives has been set for Tuesday, March 11. If needed, a primary election will be held on Tuesday, February 25. This vacancy was created when newly-elected Curtis Johnson was declared ineligible to represent District 40B (located primarily in the Roseville/Shoreview area) due to residency concerns. The winner of the special election will likely be sworn in on Monday, March 17.

February Forecast Date Set

Each biennium, the Legislature anxiously awaits the release of the state’s February Budget Forecast. The office of Minnesota Management and Budget (MMB) releases two economic forecasts each year, one in February and one in November. The November forecast serves as a preview to the February forecast and provides parameters for the Governor’s administration to make initial budget recommendations for the coming year. The February Forecast is the document that the Legislature must use to craft a balanced budget. The February Forecast is scheduled to be released on Thursday, March 6. According to MMB, “the February forecast announcement is scheduled about a week later than usual this year due to a later-than-usual release of key federal employment data.”

Sports Betting is Back

A bipartisan proposal to legalize sports betting has returned, and advocates are hopeful that this is the year it will finally pass. While the issue has been at the forefront of many voter’s minds for years, finding agreement among a diverse group of stakeholders has proven difficult. In the waning days of last year’s legislative session, it seemed that an agreement may have been reached, but the legislation still did not pass. S.F. 757, authored by Sen. Matt Klein, picks up where that bill left off. Along with introducing the bill, Sen. Klein had an opinion piece published in The Minnesota Star Tribune in which he stated: “[m]y bill is the only one that brings together all stakeholders; tribes, tracks, sports teams, legislators and the public.”

Impact of Minnesota Supreme Court Quorum Decision

Last Friday, the Minnesota Supreme Court weighed in on the question of whether 67 or 68 members of the House of Representatives are needed to constitute a quorum, deciding that 68 members must be present for official actions to take place. That decision invalidated all activity that House Republicans had taken since session started on January 14. This week, Secretary of State Steve Simon has returned to preside over the House each day at 3:30. Republicans have been in attendance, but Democrats have continued to stay away to deny quorum. Though House leaders continue to meet for negotiations, it remains very uncertain when the House will finally organize and begin functioning.

Perhaps the biggest question that many have had related to the invalidation of previous House activity relates to the hundreds of bills that had been introduced. According to the head of the Revisor’s Office, Ryan Inman, that office will automatically generate new jackets for each of those bills. Authors will have to re-sign and re-introduce new copies of the bills.

Senate Special Election

A special election was held earlier this week to fill the vacancy left following the death of Senator Kari Dziedzic (DFL). Senate district 60 is in the heart of Minneapolis, and not surprisingly, the DFL candidate, Doron Clark, won with a significant majority of the votes. Senator-elect Clark could be sworn in as early as Monday, restoring the DFL caucus’s majority. It is likely that the power-sharing agreement that the Senate is currently operating under will end next week, with Sen. Erin Murphy being named Majority Leader and committees being restructured with DFL chairs and majorities.

Another Court Case

Yesterday, Minnesota House Republicans initiated a lawsuit against Secretary of State Steve Simon. They claim that he is overstepping the authority granted to him as presiding officer by refusing to recognize Republican members for motions to compel their DFL colleagues to return to St. Paul. It is unknown when we may hear from the Court on this issue.

More on the Governor’s Budget

Governor Tim Walz unveiled his FY 2026-2027 Biennial Budget on Thursday, January 16. While the FY 2026-2027 biennium is expected to have a $616 million surplus, the FY 2028-2029 biennium has a projected deficit of $5.1 billion. The Governor solves this deficit by proposing:

• $907.5 million in budget cuts and reductions in program spending growth;
• $414.5 million in net revenue increases; and
• $748.4 million in new spending.

In combination with $3.7 billion of carryover dollars from FY 2024-2025, the Governor’s Budget will have $2.12 billion remaining at the conclusion of FY 2026-2027. Due to the budget cuts and revenue increases that would be enacted for FY 2026-2027, the $5.1 billion projected deficit turns into a $354 million surplus at the end of FY 2026-2027.

What’s Next on the Budget

In the week to come, Senate Committees will continue to hold hearings on the Governor’s budget proposals, and Minnesota Management and Budget (MMB) will begin preparing the next Economic Forecast, which is due at the end of February. After this forecast, the Governor will revise his budget proposals to match the new revenue and expenditure numbers. There are signals that provide insight into what the next forecast will look like. First the good news, MMB announced on January 10 that revenue receipts for November and December of 2024 totaled $380 million more than forecast in the November 2024 Forecast. This good news is balanced by Minnesota’s macroeconomic consultant expressing concerns that ongoing economic growth, inflation, unemployment, and interest rates will adversely impact Minnesota’s economy.