The Minnesota state budget surplus sits at $1 billion, but not really.
While state officials said a Thursday economic and budget report was good news, Minnesota’s top finance official said that inflation will eat up what many called a surplus. Still, political leaders agreed that the added money, unlike deficits they often have been dealt, will make budgeting easier when legislators return to St. Paul Jan. 6 and that no overall tax increase will be needed.
“Inflation is essentially everywhere,” Commissioner Jim Schowalter said of the state budget, and the $1 billion “surplus” mostly will be used to counteract it in the state’s two-year budget that begins next July 1.
“Yes, if you add in inflation, it evens out,” his boss, Gov. Mark Dayton, said.
However, Dayton and most other political leaders said Thursday’s report was good news and the governor insisted there is a surplus.
After raising taxes more than $2 billion in 2013, Dayton said that he sees no need for a general tax increase. On the other hand, the Democratic governor said that some type of new revenue is needed to inject needed money into road and bridge budgets.
House Speaker-designate Kurt Daudt, R-Crown, said that he does not think higher taxes will be needed for transportation, although all ways to increase transportation funding “are on the table.”
Dayton said that what he called a “surplus” could help fund some child care tax credits, increased broadband facilities across greater Minnesota and other needs.
As soon as the $1 billion surplus was announced, groups ranging from the University of Minnesota to those representing nursing homes said they need some of that money.
Part of the $1 billion is $373 million that is not being spent in the current budget and can be spent in the next two years. State law automatically requires another $183 million to remain in the reserve and not be folded into the next budget.
The news gives Dayton a benchmark as his administration works on a budget proposal that he plans to give legislators Jan. 27. The Republican-controlled House and Democratic-controlled Senate will draft their own budget plans, most likely based on the Dayton budget, after another revenue report in late February or early March. Dayton will tweak his budget after that report.
Thursday’s report, known as a budget forecast, takes a look at the national and state economies and predicts how much is available to spend on state programs.
The state general fund budget has grown from $31.5 billion in 2006-2007 to $40 billion now. It is expected to top $40 billion for the two years beginning next July 1, a figure state lawmakers and the governor will work out in the legislative session that begins Jan. 6.
The general fund budget is that part of state spending funded by Minnesota taxpayers. When federal and other funds are included, the state’s total spending can be twice the state-funded total.
While Democrats, who have controlled the Legislature and governor’s office the past two years, were celebrating Thursday’s report as good news, Republicans had their doubts.
Daudt said that the state is bringing in more money, but Minnesotans’ personal budgets do not appear to be improving.
The Minnesota economy is closely tied to national trends, State Economist Laura Kalambokidis said. That includes a worse-than-expected housing market, which affects industries across greater Minnesota such as lumber and window makers.
Senate Majority Leader Tom Bakk, D-Cook, said that he hopes the budget cushion announced Thursday gives lawmakers a chance to work on one of greater Minnesota’s most pressing issues: housing.
Industries located in communities from Roseau in the north to Jackson in the south say they have jobs available, but need housing for workers, and in many cases potential workers need more training.
Most of the state’s key political leaders specifically said after Thursday’s budget forecast that it means no overall tax increase will be needed. However, Dayton emphasized what he sees as the need to raise revenue for transportation.
While he said he is open to ideas about how to raise that revenue, one possibility he has discussed would be to add a tax on gasoline at the wholesale level. The current gas tax is added at the pumps.
Daudt, whose Republican candidates this fall campaigned on improving roads and bridges, said he is not convinced higher taxes are needed. He and other Republicans have said they prefer to cut other state programs that may not be needed and transfer those funds to transportation.
In general, state political leaders were waiting for the budget forecast to draw up specific proposals.
Besides transportation, Dayton specifically mentioned the need to fund expansion of high-speed Internet, known as broadband, across the state.
Broadband, he said, is “crucial for economic development over the state.”
Dayton and legislators this year approved a down payment for improving broadband access, but some projections indicate that billions of dollars more are needed to bring greater Minnesota to the same level as the Twin Cities.
Key budget numbers
in next two-year budget
$1.037 billion: More money expected than earlier projections
$412 million: Lower revenues expected than earlier prediction
$502 million: Expected drop in overall state spending
$443 million: Less spending needed than expected in health programs
$2 billion: Expected gain in individual income tax receipts
$598 million: Expected increase in sales tax collections