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State’s projected budget surplus shrinks to $900 million

Minnesota Management & Budget Commissioner Myron Frans presents Minnesota’s Budget and Economic Forecast Friday. The state is projected to have a $900 million surplus at the end of the 2016-2017 biennium. Photo by Paul Battaglia


State budget officials on Friday unveiled an updated economic forecast that projects a smaller two-year surplus for lawmakers to consider during the 2016 legislative session that kicks off March 8.

Minnesota Management & Budget’s latest projection estimates lawmakers will have a $900 million budget surplus for 2016-17 to work with, down from an estimated $1.2 billion forecast last December. MMB’s February Budget and Economic Forecast attributes the scaled-back projection to slower than expected revenues, a weakening U.S. economic outlook, as well as a slowing Chinese economy impacting the iron ore industry.  

Release of February Budget and Economic Forecast by Minnesota Management & Budget 2/26/16

Despite that, MMB Commissioner Myron Frans said during a news conference that the state’s long-term budget outlook and economic fundamentals remain strong.

“The story in Minnesota is we continue to be in a strong economic position,” he said. “We are weathering the global slowdown quite well.”

MORE Read archived coverage of the November budget forecast

Projected tax revenues over the 17 remaining months of the two-year biennium have been adjusted downward by $427 million in the newest forecast. A corresponding projected $129 million decrease in state medical assistance spending, thanks to a tripling of federal funding, will help offset that expected drop in revenue, Frans said.The projected surplus for the 2018-19 biennium shrank, too, down to roughly $1.2 billion from a previously-projected $2 billion.

House Speaker Kurt Daudt answers questions regarding Minnesota’s Budget and Economic Forecast which was released Friday. The state is projected to have a $900 million surplus at the end of the 2016-2017 biennium. Photo by Paul Battaglia

The revised projections are “a wake-up call for all of us,” Gov. Mark Dayton said. He reiterated to the press Friday that increased investment in early education remains his No. 1 priority. All new spending, however, will be harder to do, he said.

Dayton said he will present a revised supplemental budget proposal March 15.

“The purse is not as full as it seemed three months ago,” he said. 

Friday’s forecast frames the fight to come during the 10-week legislative session, when lawmakers are expected to wrangle over how to — or not to — spend the nearly billion-dollar projected surplus. The less optimistic projections could impact nearly every major item lawmakers have said they wanted to tackle before hitting the campaign trail, with the potential to put on ice a long-term transportation solution, the governor’s universal pre-K plans and a major tax bill.

WATCH Full video of the House/Senate Republican response to the February Budget and Economic Forecast on YouTube

Gov. Mark Dayton's response to the February Budget and Economic Forecast 2/26/16

The altered forecast also puts lawmakers in a financial position closer to that they left behind following the Legislature’s adjournment in June. Unable to strike a deal on taxes and transportation before adjourning last June, lawmakers left $865 million on the table for the 2016 session, close to the projected $900 million they’ll now have to work with.

“It feels about like it did when we went home in June,” Senate Majority Leader Tom Bakk (DFL-Cook) said.   
House and Senate Republican leaders repeated their commitment to passing tax cuts of some kind, saying Friday that tax increases in recent years have hurt Minnesota’s economy and led to the lower-than-expected projected surplus.

“We’re collecting almost a billion dollars more than we need,” House Speaker Kurt Daudt (R-Crown) said. “And the people who aren’t seeing a surplus in their budgets are Minnesotans.”

WATCH Full video of the House/Senate DFL response to the February Budget and Economic Forecast on YouTube

DFL legislative leaders sounded a cautious note, saying spending should be targeted toward efforts to aid middle-class Minnesotans. Tax cuts, Rep. Erin Murphy (DFL-St. Paul) said, would “punch a hole” in the state’s structurally balanced budget. 

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