State’s projected budget surplus grows to $1.5 billion in latest forecast

(UPDATED — 5:07 p.m.)

Lawmakers learned Thursday they will have even more money to work with during the 2020 legislative session.

Minnesota Management and Budget officials released the 2020 February Budget and Economic Forecast, saying the state’s budget surplus has increased by $181 million from the November forecast and now stands at $1.51 billion for the current biennium.

The forecast provides the most recent snapshot of the state's financial health. Lawmakers will use it to inform the budgeting and policy decisions made during the 2020 legislative session, which must end by May 18.

MMB Commissioner Myron Frans said that state’s current situation remains stable based on current law.

According to forecast documents, “A small increase to the General Fund revenue forecast along with a similar-sized reduction in spending estimates result in a projected surplus of $1.513 billion for the FY 2020-21 biennium, $181 million larger than the November estimate.”

However, state budget officials warn that an economic slowdown remains in their projections; therefore while budget improvement is expected to continue into the next biennium, challenges remain.

Officials also noted a handful of forecast risks: consumer confidence, financial market volatility, trade policy uncertainty, prolonged and/or widespread virus outbreaks. They also note 16 months remain in the current biennium.   

MMB’s November forecast projected a $1.3 billion surplus, which was nearly $300 million more than the 2019 February forecast, which predicted a $1.05 billion surplus.

The General Fund budget reserve remains at nearly $2.36 billion this biennium, but current law would reduce it by $491 million at the beginning of the next biennium. Frans and Gov. Tim Walz encouraged legislators to restore that funding so the state is better prepared for a potential economic downturn.

Spend or give back

DFLers have previously indicated spending one-time funds, including $500 million for child care and other early education measures; Republicans continue to say tax relief should be a priority.

“There is only a ‘surplus’ in the true sense of the word if Minnesotans feel that we’ve invested all that we need to in education, health care and families’ economic security,” said House Speaker Melissa Hortman (DFL-Brooklyn Park) said at a news conference. “We think there are important investments yet to make in families’ education, health care, and economic security. We view the projected positive balance as an opportunity to invest in Minnesota’s families.” 

“The message for Democrats and the governor is not whether or not we’ll have a tax bill, but how big will that tax relief bill be. … It’s time to make sure that we honor our commitments to Minnesotans and give them some of their money back,” House Minority Kurt Daudt (R-Crown) said at a news conference. “It’ll help grow Minnesota’s economy, which in turn will help bring in additional tax revenues.”

“With this billion dollar budget surplus we can end the immoral tax on social security benefits and help our seniors keep more of the money they worked their entire lives to earn,” Rep. Anne Neu (R-North Branch) said in a statement.

Hortman countered “the vast majority” of Minnesotans who receive Social Security don’t pay tax on that income. Those who do pay are wealthier.

In a statement, Rep. Tim Miller (R-Prinsburg) said, “In every year I have served we have increased spending and still had a surplus. Almost none of this money has gone to tax relief of hardworking Minnesota citizens. When is it their turn? When is it enough?”

Before everyone gets too excited to spend here or there, House Majority Leader Ryan Winkler (DFL-Golden Valley) issued a note of caution.

“If you put inflation in the forecast, as we should, we are looking at a $654 million deficit in the next biennium. Just to maintain the same level of services we have today we are going to be short $654 million,” he said.

Because of that, could the projected surplus simply be left alone?

“There is definitely a benefit for Minnesotans to let all the money fall to the bottom line,” Hortman added.

Capital investment outlook

Calling the surplus, “good economic news for Minnesota,” Walz reiterated he wants a “robust bonding bill” this year focusing on water quality, higher education structures, housing, and roads and bridges. More than $5 billion has been requested from both state and local entities. Walz proffered a $2.03 billion package in January.

“We must listen to what our communities are telling us. And they are urgently telling us that they need our support to increase access to safe drinking water and affordable housing, fix local roads and bridges, improve safety infrastructure, and protect their lakes and rivers,” Walz said in a statement.

With a potentially economic downturn on the horizon, and low interest rates, Hortman said it’s important to “invest big” this year.

She added that state budget professionals have indicated a package of at least $3.5 million in general obligation bonds and $700 million in cash would be doable, but there was no commitment to any number.

Daudt said Republicans want a bill with a good mix of infrastructure projects. “Is there a chance we could go above a billion? There is a chance we could. Is there a chance it’s near $2 billion? Probably not.”

“We’re going to get to a number that we can all agree on,” said Senate Majority Leader Paul Gazelka (R-Nisswa). “ … There is a lot of dialogue among House and Senate Democrats, Republicans to work toward a good bonding bill and for Minnesota. You should expect it to get done early and the number we’ll just have to wait and see.”

House Public Information Services’ Assistant Editor Jon Mohr and Assistant Director/Editor Mike Cook contributed to this story.