Budget surplus forecast for Minnesota sets up scurry
ST. PAUL — A gaining economy drove a projection Thursday of a nearly $1.1 billion Minnesota budget surplus, touching off an instant scramble from people seeking more spending, tax cuts or savings for a rainy day.
The surplus will have an automatic impact on two fronts. Public schools will be repaid in full for IOUs the state racked up during tougher budget times and an airport repairs account that lawmakers siphoned money from five years ago will be replenished. That will leave $825 million for the Legislature and Democratic Gov. Mark Dayton to work with in an election-year session.
Dayton told reporters that if the surplus holds up when the estimate is updated in February, he’ll recommend that more than half go to tax cuts, including the repeal of some new sales taxes adopted just this spring.
The prediction comes five months into a new two-year budget, meaning there’s plenty of time for the needle to move in either direction. For now, tax collections are more robust than anticipated and expected spending is lower. The surplus represents what would be left in June 2015 if everything stays on course.
“This forecast shouldn’t be mistaken for money in the bank,” said Jim Schowalter, the state’s budget commissioner.
The projection is based on a raft of economic data that show momentum. State unemployment rate is at a six-year low and far better than the national average. After a stagnant stretch, wage growth has risen by 4 percent. Corporate profits are beating expectations. Conditions bode well for heightened consumer spending, business investment and hiring in the months to come.
But there are cautionary notes in the report about the tenuous housing market and political instability in Washington.
Leaders of both parties called for restraint. After all, lawmakers have spent years grappling with deficits.
“It’s premature to throw a ticker-tape parade,” said House Majority Leader Erin Murphy, a St. Paul Democrat.
Still, she and fellow Democrats promoted the news as a sign the state is moving in the right direction — on their watch. They took control of both legislative chambers in 2013 after a two-year run by Republicans. They campaigned on bringing more stability to the budget and on undoing more than $2.8 billion in deferred payments to schools, although the repayment had begun before they took charge.
Dayton said he hoped the swing from a deficit a year ago to a surplus would counter arguments that Democrats had endangered the state’s comeback by raising $2.1 billion in taxes to head off additional cuts and allow for new spending on priority programs.
“Critics claimed that this balanced fiscal approach would have a chilling effect on Minnesota’s economy,” the governor said. “Today’s forecast proves those critics wrong.”
Republicans complained Democrats were taking a “victory lap” for taking in more tax dollars than government needed.
“Minnesotans frankly don’t care how much government has to spend,” said House Minority Leader Kurt Daudt, R-Crown. “They care how much their families have to spend.”
The tax plan adopted last spring created a new fourth bracket on high incomes and significantly increased the per-pack cigarette tax. Lawmakers also imposed sales taxes on farm equipment repairs, telecommunications supplies and commercial warehousing services.
Unless things take a turn for the worse, Dayton committed to scrapping the new sales taxes and letting middle-class taxpayers claim federal tax breaks on their state income tax forms. Combined, the two changes would cost more than $435 million.
House Speaker Paul Thissen of Minneapolis noted House Democrats previously voted for the middle-class tax relief and said they would be open to repealing the new sales taxes. Republicans said they would join Dayton in his push — and hoped he would go even further.
Dayton said he wouldn’t detail his full ideas for new state spending until after the next budget report. “We’ve got to avoid falling back into the trap of overpromising on what we can actually deliver until we know what we can actually do,” he said.
Groups that lobby for education interests and caregivers have also made it known they’ll be after more money. A campaign to give rate increases to personal care attendants for the frail and disabled is in full swing, attracting nods of support from prominent Democrats and Republicans.
Schowalter, a budget adviser to the governor, said Minnesota could stand to put more money into reserves to soften the blow from future downturns.