Minnesota’s large budget surplus holds steady at $17.5 billion in new forecasts
Ferguson Funds and Brian Bakst-MPR
Minnesota’s Management and Budget leaders on Monday announced that the state is forecasting a budget surplus of $17.5 billion, slightly below the figure they forecast in December.
The state continued to enter more than expected in the last two months, which increased the total surplus. But inflation in current state government spending, along with some spending that lawmakers have already approved this year, has reduced the amount.
The update sparks discussions about how much DFL legislators and the governor can spend in the next two-year state budget, as well as their priorities, like starting a new paid family leave program, increasing funding to schools and additional child care programs.
Minnesota Management and Budget Commissioner Jim Schowalter said the state’s economy withstood the challenges posed by the COVID-19 pandemic and outperformed the US economy overall.
“Minnesota is doing really well,” Schowalter said. “We continue to outperform other states, and we really look very strong compared to the national economy.”
In December, the forecast was for a budget surplus of nearly $18 billion, after the state’s economy beat expectations and Minnesota posted higher-than-expected income and sales tax revenue. These trends have continued in subsequent months, and the surplus is expected to remain substantial.
Lawmakers and the governor approved a change that requires economists to include inflation in the costs of state programs.
Why does inflation return to forecasts?
For the past two decades, Minnesota has kept inflation estimates for state spending outside the budget forecast. Economists offered a provisional total for a budget surplus or deficit, and policymakers had to account for or ignore inflation on their own.
But this year lawmakers rushed to reintroduce inflation into the forecast, arguing that it provides a clearer picture of the state’s finances.
“The bottom line is that all the economists want the numbers to be accurate,” said Sen. John Marty, DFL-Roseville, who led the Senate push to reinstate the measure. “A forecast does not spend any money, it does not raise any money, it is simply giving you honest information so that we, as the Legislature, can put together a good budget.”
Schowalter, the MMB commissioner, summed it up this way: “If gas prices go up, we will have to pay for it. And so to say that there is a surplus, and that the recognition of some of those inflationary costs will be collected in a number this time.”
But not everyone agreed with the change.
Republicans on Capitol Hill opposed the change, saying it would put state spending on “autopilot” and could reduce the amount of money available to send back to taxpayers.
“The government doesn’t need the numbers stacking up for and against the little guy anymore,” said Sen. Zach Duckworth, a Lakeville Republican, during a floor debate. “If the state of Minnesota sitting in a surplus of $18 billion feels the need to adjust those numbers downward, I can only imagine what the people of Minnesota are feeling.”
Where will the surplus go?
Lawmakers will spend the next two and a half months debating how to spend the surplus, as well as tens of billions more dollars in a two-year budget. And they’ve already hinted at where they want the money to go.
Democrats, who control the House, Senate and governor’s office, have said they expect to invest heavily in childcare, education and a paid family and medical leave program for workers. They have also presented a package of capital investments worth 1.9 billion dollars.
“I think the DFL Governor, the DFL Senate and the DFL in the House are all aligned around the goal of trying to make it easier for people to pay for their lives,” said House Speaker Melissa Hortman, DFL. -Brooklyn Park. “So we are going to be looking at all the ways that this surplus can be prosperity that is shared with all Minnesotans.”
Governor Tim Walz has released a $65 billion global budget plan, with increased funding for schools, a paid family and medical leave program, and refund checks for 2.5 million Minnesota households. He also proposed a tax increase for some stock sales and a payroll tax increase to fund the paid leave program in the future.
Republicans on Capitol Hill have said that taxpayers have contributed to the surplus and should see a tax cut or refund of that funding. They have also opposed DFL efforts to implement paid family leave and sick leave programs, arguing that they create too great a burden on employers.
And now that?
With the latest budget information in hand, state legislators will immediately begin work on a two-year budget plan. The governor will use the forecasts to revise his budget proposal, and legislative groups will come up with their own plans in the coming weeks. They are expected to spend the spring crafting a proposal that can win majority support in both chambers and the governor’s signature.
There will be long debates in the coming weeks and months about where the state should increase funding, who should get a tax break or discount check, and whether the time has come to raise taxes.
The governor and the Legislative Assembly have until July 1 to reach an agreement or risk a state government shutdown. DFL leaders have said they are hopeful they can finish their work before the Legislature is due to adjourn on May 22.