By Don Davis and Danielle Nordine
Minnesota’s economy is doing better than the country, helping generate a modest state budget surplus, but that does not translate into extra money.
That is because the money, in essence, already is spent.
State finance officials Wednesday announced a $323 million projected surplus, because a little more revenue is coming in and, mostly, less money is being spent.
“The state has gone into a holding pattern,” Commissioner Jim Schowalter of Minnesota Management and Budget said in announcing the state’s newest budget forecast shows more money than was expected last November.
The projected surplus in the current two-year budget, on top of an $876 million surplus predicted in November, does not mean Minnesota’s budget outlook has improved a lot, the commissioner added.
“The fiscal issues in front of the state are not resolved in this forecast,” Schowalter said.
Minnesota faces a $1.1 billion deficit in the next two-year budget, beginning July 1, 2013. That means it will be years before anyone can say, as did one of Schowalter’s predecessors, that the state “has a boatload of money.”
Even without big bucks, policymakers were happy that they are not facing a deficit, as they did last year when they were forced to plug a $5 billion hole in the state budget.
“This is very good news and this is a very positive sign,” House Speaker Kurt Zellers, R-Maple Grove, said.
Zellers said the news is good because both budget forecasts in the last year were positive.
Democratic Gov. Mark Dayton said the state needs to stick with current law, replenishing state reserves and repaying schools with any extra money.
“We have the responsibility to continue on this course,” he said.
State law requires the first $5 million of the “surplus” to be used to replenish the state’s reserve fund. The remaining $318 million is committed to paying down more than $2 billion the state owes school districts after delaying payments promised to schools.
Schowalter said that state legislators could change the law in the next “couple of weeks” and do something else with $300 million scheduled to be paid to schools in mid-March.
However, lawmakers generally agreed the surplus funds would go toward the reserves and payments to school districts.
“I think everyone’s going to let that sit,” Rep. Paul Marquart, DFL-Dilworth, said.
“Repaying the school shift … is good for all of the communities in the state of Minnesota,” Sen. Joe Gimse, R-Willmar, said. “The sooner we can get that paid back to our schools the better.”
“It is probably not a good idea” to go back on the promise to repay schools, Sen. David Tomassoni, DFL-Chisholm, said. “I think what is in law probably is going to say there.”
Three-fourths of the budget improvement is credited to lower than planned state spending. Much of that savings came in health-care programs for the poor, which enrolled fewer than expected people and reduced spending.
State revenues now are expected to rise $93 million, 0.3 percent, above earlier estimates in the current budget.
State Economist Tom Stinson said the state economy remains slightly ahead of the national numbers, which helped provide extra money to the state.
The Minnesota construction industry remains in the worst shape of any part of the economy, Stinson said, but even it shows signs of improvement.
The forecast shows a public works funding bill, paid by the state selling bonds, still is a real possibility this year, Senate Minority Leader Tom Bakk, DFL-Cook, said.
“We’re willing to do some heavy lifting on a bonding bill,” he said.
While the surplus was welcome, some lawmakers warned there are challenges ahead. The forecast shows a deficit for the next budget cycle, and the state still will owe schools $2.4 billion.
“It’s encouraging news, but we are not yet out of the woods, and we still have a lot of work to do,” Marquart said.
Budget strategies need to change, he said.
“What we’ve done right now has led to more debt in the future with higher property taxes on people around the state, especially in rural Minnesota,” Marquart said.
“Moving forward, we need a sustainable, balanced approach to budgeting in order to get us out of this structural deficit problem,” Rep. John Persell, DFL-Bemidji, said.
Sen. Bill Ingebrigtsen, R-Alexandria, said Republican policies contributed to the surplus and reduced deficit anticipated for the next budget biennium.
“We need to continue with this path of fiscal responsibility, balancing our checkbooks and getting Minnesotans back to work,” he said.
Gimse said the forecasted surplus is better than was predicted in November, and with unemployment numbers improving, that number could continue to go down.
“I expect we’ll see continued growth in our economy and movement in the direction of having more revenue coming into the state,” he said.
“It kind of gives us some reason to not be so concerned about the budget for the rest of the session,” Gimse said of the forecast.
“It’s great news for Minnesota, quite a turnaround from last year,” said Sen. Doug Magnus, R-Slayton.
Most of the surplus is spoken for, Magnus said, but he agreed repaying the reserves is necessary given the size of the state’s budget and he was in favor of paying back the school funding shift.
“Minnesota is moving in the right direction, providing better economic opportunities for our businesses and workforce,” Sen. Scott Newman, R-Hutchinson, said.
“A second positive forecast is significant,” Sen. Roger Reinert, DFL-Duluth, said. “This is a continued sign that our economy is recovering. However, the state’s budget remains structurally unsound, and Minnesota continues to have major debts to repay.”
Sen. John Howe, R-Red Wing, said he is “cautiously optimistic” after the forecast. He said he is glad the plan is to replenish reserves with extra funds.