The Big Story Blog

Minnesota wraps hopes, worries into surplus forecast

Posted at 4:39 PM on December 1, 2011 by Paul Tosto
Filed under: state budget

Here's MPR News reporter Tim Pugmire's wrap up on today's budget forecast action.

Minnesota Management and Budget Commissioner Jim Schowalter has spent a lot of time in recent years talking about deficits, and most experts were predicting the new forecast would continue the trend. Even Schowalter appeared caught off guard by the results.

Schowalter: "We're not quite sure what to say. My daughter, who's about eight years old would probably say it best, 'surprise!'

Schowalter says the unusually good news is the result of revenues coming in $358 million better than expected, and spending levels that were $205 million below earlier estimates.

Nearly all of the spending reductions came in the health and human services area. Showalter says the total projected surplus of $876 million will now go, as required by state law, toward replenishing the state's cash-flow account and budget reserves, which are both nearly tapped out.

He says a bigger surplus would have allowed for repayment to begin on the school funding delay that was part of last summer's budget agreement, which erased a $4 billion deficit.

"We want to restore the fiscal stability of the state. We want to take this good news, build on it, manage risks and hopefully keep on delivering government better, making sure we're not gyrating on this week's news."

Still, Schowalter warned of continued risks and concerns ahead. The forecast projects a $1.3 billion deficit by fiscal year 2014. There are also more immediate risks.

State Economist Tom Stinson says this forecast assumes that Congress will continue payroll tax deductions and benefits for the long term unemployed.

"If that doesn't occur, somewhere between .6 of a percent and a 1 percent decline in the expected growth rate for the U.S. economy occurs. So that puts us down below 1 percent growth, which gives us really no cushion against any adverse shocks that might occur."

Republican legislative leaders offered a cautious assessment of the forecast.

Senate Majority Leader Amy Koch says the surplus shows that the GOP budget mantra of "live within our means" is working. But she says the job is not done. Koch says the surplus doesn't really change any of the plans Republicans have for the 2012 session.

"Our agenda for the next session was about reforming and changing the way that government operates, to make it more efficient, more cost effective and more user friendly. And we'll continue with that. It was also about private-sector job growth. It was about creating an environment that's friendly for the private sector to grow those wages and grow those jobs, and as this forecast demonstrates, that's what works."

Referencing last summer's budget impasse, Koch also proclaimed that the new forecast should once and for all end the discussion of Governor Mark Dayton's proposal to raise income taxes on top earners.

Dayton says there's no reason to revisit his proposed tax increase as long the budget surplus holds up, but he wouldn't speculate about the next budget cycle.

Overall, Dayton views the forecast as "terrific news for Minnesota," and he was especially pleased with the reductions in health care spending. Dayton says he won't recommend any adjustments in the current budget until he sees the next economic forecast, which is due out in late February.

"I note that a year ago the predicted deficit changed by over $1 billion in just those three months. I'm hopeful however that continuing improvement in that forecast will permit us to accelerate our schedule for repaying our schools the money borrowed from them last summer."

Another projected surplus will likely make for a far less contentious legislative session next year. Senate Leader Koch says she would even welcome a rare, early adjournment. The Legislature is scheduled to convene on January 24.

About Paul Tosto

Paul Tosto

Paul Tosto writes the Big Story Blog for MPR News. He joined the newsroom in 2008 after more than 20 years reporting on education, politics and the economy for news wires and newspapers across the country.

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