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Minnesota projects $1.5 billion surplus

December 7, 2018

ST. PAUL — Minnesota’s economy is humming and is expected to generate a $1.54 billion state budget surplus, providing a financial launchpad for incoming Gov. Tim Walz.

The state’s economic forecast Thursday puts Walz, a Democrat, in a strong position to start working on some of his campaign vows, including boosting educational spending, expanding publicly funded health care and new money for transportation.

This is the final projection of state revenue and expenditures during DFL Gov. Mark Dayton’s time in office. Thursday’s surplus starkly contrasted with the $6.2 billion budget deficit Dayton faced when he took office in Jan. 2011.

“Minnesota’s budget and economic outlook remains sound, despite slower growth through the budget horizon,” according to a release from Minnesota Management and Budget.

The budget officials noted increased revenue and lower spending contributed to the surplus available for the coming two-year budget.

While the state’s short-term financial outlook is strong, the sustained economic expansion that has contributed to a string of surpluses is projected to slow in 2022 and 2023. The surplus is estimated to drop to $456 million in those years. Uncertainty over trade policies and volatility in the stock market were highlighted as risks that could impact the forecast.

That could temper what ends up in the budget for 2020 and 2021, which Walz and state legislators will be drawing up over this winter and spring. Walz must release his initial two-year budget proposal in February. It is expected to be around $50 billion.

Walz has said he would push to raise the state’s gas tax to repair roads and bridges, and would not rule out tax increases for other priorities.

Republican legislators have said such increases are unnecessary.

“I’m proud that the last Republican budget led to today’s surplus. The budget forecast shows we won’t need tax increases to fund Minnesotans’ priorities in 2019. Good news!” Senate Majority Leader Paul Gazelka, R-Nisswa, tweeted Thursday.

Recently elected Senate president Jeremy Miller (R-Winona) said in a statement: “By virtually every measure, Minnesota’s economy is in great shape. This budget surplus is more evidence of that. Now we have to look forward. ... I look forward to working with (Walz) to find bipartisan solutions that strengthen our economy, grow jobs and put entrepreneurs and families in the best possible position to succeed.”

The state’s economist and budget officials release forecasts twice a year. This projection is $1.2 billion higher than the previous forecast in February. Republicans, who had been in the majority in both the state House and Senate for the past two years, previously credited work on state tax cuts and last year’s federal tax changes with contributing to the $329 million February surplus.

Nine out of the past 10 forecasts have been surpluses, Minnesota Management and Budget Commissioner Myron Frans has noted, but to sustain that the next administration will have to carefully weigh the future costs of spending priorities.

The more than $1.5 billion budget surplus is what’s left after a certain percentage, set in state statute, is devoted to the state’s budget reserve, which is a portion of the state’s so-called rainy-day fund. This time $491 million was added to the reserve, which now totals more than $2 billion, the largest amount in state history.

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