Lawmakers divided on priorities for $1.2 billion state budget surplus

Kalambokidis

By Don Davis

Good economic news looks like it will lead to a few Democratic squabbles over how to spend a budget surplus, with Minnesotans wondering if they will see taxes fall or state spending increase.

“I’m happy to be here to deliver this budget forecast, not the weather forecast,” Commissioner Jim Schowalter of Minnesota Management and Budget said Friday, as snow began to fall in St. Paul.

He announced that the state has a $1.2 billion budget surplus, up $408 million in the past three months.

The news means state leaders must decide what to do with the money: give it back to Minnesotans via tax cuts, increase spending or boost the budget reserve. They likely will do a bit of all three, but Democrats who control the House, Senate and governor’s office do not fully agree on the split.

House Speaker Paul Thissen, D-Minneapolis, and Gov. Mark Dayton put priorities on a $500 million tax cut and spending cash on some public works projects that the state usually borrows money to fund.

Senate Majority Leader Tom Bakk, D-Cook, said it may be too late for some of the House’s $500 million tax-cut bill to help people filing this year. He doubted that software could be upgraded in time to include any state tax changes before April 15.

Bakk and Assistant Majority Leader Katie Sieben, D-Cottage Grove, did not reject tax cuts and higher spending, but indicated their priority is putting more money into the reserve.

The debate over how to use surplus money has not been common in recent years. The $1.2 billion surplus is the biggest projected since February 1999. Since then, the twice-a-year budget forecasts often have shown deficits.

The report shows revenues up $366 million above earlier projections in the budget that ends June 30, 2015. Individual income tax led the way with a $188 million increase, followed by sales taxes up $167 million.

A 0.1 percent spending decrease and lower-than-expected interest rates on bonds sold to finance a new Vikings stadium also helped the financial picture.

Schowalter and State Economist Laura Kalambokidis warned that good times are not guaranteed. For one thing, harsh winter weather could have a more long-lasting impact than predicted.

While many legislative Democrats credit the surplus to a $2.3 billion tax increase and spending changes they passed last year, fellow Democrat Dayton did not. Republicans took credit because of budgets they wrote or heavily influenced in recent years, saying the economy could not turn around in eight months since Democrats’ budget started.

Schowalter and Kalambokidis said there is no evidence that the 2013 tax increase affected the economy.

Kalambokidis said the harsh winter weather influenced the 2014 economy to begin on the soft side, but predicted that it will pick up.

All aspects of the state economy are improving, she said, other than federal government employment and manufacturing.

Dayton singled out figures in the report that showed Minnesota employers added 3,500 jobs a month in 2012 and 3,800 last year.

Schowalter, who favors a bigger budget reserve because it provides a “shock absorber” for the state budget, said the state has about 2.3 percent of its budget set aside now, but financial agencies prefer to see 4.9 percent. He is expected to recommend that to Dayton, who hinted he is unlikely to recommend that big of a reserve.

The governor plans to release his proposal for budget and tax changes next week, a document legislative leaders will use to craft their own proposals.

The Legislature and Dayton approved a $39 billion, two-year budget last year and only need to make minor changes this year.

There is widespread legislative support to spend some of the surplus on nursing homes and other long-term care programs, with a goal of increasing worker pay.

A group pushing for more elderly and disability aid said the forecast bolsters their chances. The 5 Percent Campaign is seeking $80 million to help 92,500 Minnesotans.

“A rate increase for home and community-based services is the major issue that wasn’t addressed in 2013,” bill sponsor Sen. Kent Eken, D-Twin Valley, said Friday. “Today’s forecast tells us we have the resources to address this priority in 2014.”

Other than long-term care spending, Senate Minority Leader David Hann, R-Eden Prairie, said: “We think we need to give it back.”

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