Minnesota leaders shared visions of tax cuts and transportation and school spending increases Thursday after they heard the state is expecting a nearly $2 billion budget surplus through 2017.
Gone are the days when leaders talked of slashing spending or tax increases to fill in mawing state budget deficits. The state’s budget, borne of a recovering economy, higher state revenues and competitive health care bidding, is again coming up with extra cash.
“Overall, it’s more people working, and making more money, that have increased state revenues,” DFL Gov. Mark Dayton said.
The surplus, which will quickly shrink to $1.2 billion after legally required savings set aside, begins to shape the next year’s budget fight. Under the new forecast, the state is expected to bring in $42.7 billion through summer 2017 and it has plans to spend only $41.6 billion.
Here are the details you need to know:
WHERE THE NEW MONEY COMES FROM
The biggest chunk of the money is a carryover from last year — more than $500 million lawmakers didn’t know about in this year’s session.
Also huge: State health care costs are now expected to be more than $400 million below what experts thought they’d be in February, largely because of competitive bidding and healthier populations. Those combine with increased spending on education, largely because more students are in school, and other areas for a total of $249 million in lower spending.
Another $90 million reflects increased revenue, primarily in the sales tax and corporate tax. The state’s income tax revenue is still expected to increase, but by more than $100 million less than previously believed.
THE TIME OF PLENTY IS UNEVEN
In the job market, the number of people looking for jobs is almost equal to the number of employers seeking applicants. But in pockets of the state, there is a “mismatch” between the two, said state economist and University of Minnesota professor Laura Kalambokidis.
Sometimes jobs are available in parts of the state where there aren’t workers or workers lack the skills employers want. And the mining and agriculture sectors are struggling, as are Minnesotans of color, and low oil prices and a cold start to the year dragged down the early part of 2015.
With those gaps in prosperity, the rosy projection has plenty of room to turn dark.
“Clearly, what we have is a cautionary tale,” Management and Budget Commissioner Myron Frans said.
Across the country, wages are increasing and unemployment is falling, but “the rate of involuntary part-time employment remains elevated, and the labor force participation rate remains very weak,” the forecast says.
FORCED SAVINGS
A few years ago, Minnesota crafted a law to force lawmakers and the governor to set aside money for its reserve funds. These funds could be tapped in an economic downturn, avoiding less-palatable options of raising taxes or cutting spending on cherished programs.
State law dictates that of the anticipated $1.9 billion surplus, $594 million automatically be set aside for this rainy day fund. That will give the state a $1.6 billion cushion, the largest it has ever had.
PROPOSED TAX CUTS
Lawmakers from both parties, both chambers and the governor all have plans for tax cuts in 2016.
“I sense a general optimism that there is going to be a tax bill,” said Senate Taxes Committee Chair Rod Skoe, DFL-Clearbrook. “But, as always, it’s the issue of what’s in it.”
Skoe said the Senate Democratic-Farmer-Labor majority would prefer “smaller, incremental changes” and one-time tax breaks over the “large, permanent tax changes proposed by the House.” But Skoe did say the Senate wants some permanent tax relief, including a cut to the state’s business property tax that’s also a top priority for Republicans.
“The bottom line is that Minnesotans have been overtaxed and we need to look at some permanent relief,” said House Majority Leader Joyce Peppin, R-Rogers.
House Speaker Kurt Daudt, R-Crown, said Republicans’ overall tax cut plan would balance breaks for individual taxpayers breaks for businesses, particularly small businesses.
Dayton, like some other DFLers, has focused his tax cut proposals on earned income tax credits and child care tax credits.
PROPOSED SPENDING, DECISION MAKERS
Dayton on Thursday reiterated his long-standing goal to have the state spend more money on education programs, particularly pre-kindergarten programs. When asked, he declined to say how much he believes should be spent. But he reiterated that lawmakers had better provide money for education if they want him to sign a tax cut bill.
The governor did, however, put a fine point on his plan to improve Internet access to rural areas. He wants lawmakers to approve $100 million in new broadband funding to bring higher-speed Internet access to rural areas. That would be a tenfold increase over spending approved this year.
Republican legislative leaders did not reject those proposals, but they didn’t warm to them, either.
“We’re not proposing any spending increases at this moment in time,” Daudt said. “It’s not that we’re necessarily against any of them; we are just going to take some time and analyze them before the next session.”
PROPOSED SPENDING, ADVOCACY GROUPS
News of the surplus Thursday spurred interest groups to clamor for a share of the money.
The Coalition of Greater Minnesota Cities said $45.5 million of the money should go to increasing legislative assistance to cities — an “investment” that Le Sueur Mayor Robert Broeder said would lead to “better roads, safer neighborhoods and stronger businesses.”
A union representing University of Minnesota faculty held a midday rally calling for the “surplus to be invested in education … not short-sighted tax giveaways.” Higher Education Commissioner Larry Pogemiller and several DFL lawmakers also spoke at the rally.
And the industry that serves older adults and Minnesotans with disabilities would also like to benefit from the state’s good fortunes.
“Finding and retaining caregivers is now a crisis across the state,” said Bruce Nelson, CEO of disability provider association ARRM.
Nelson said that groups working with those populations will ask lawmakers for about $90 million to fund wage and compensation increases for about 91,000 caregivers. Bipartisan legislative leaders are already supporting that proposal.
WHAT’S NEXT?
By Jan. 15, Dayton has to propose a bonding bill — a proposal to borrow money to pay for capital projects around the state. On Thursday, he predicted he’d propose $850 million to $1 billion in borrowed money. Because the state’s debt costs have shrunk over the past year while its revenue has increased, even a billion-dollar bonding bill would still be below the amount of debt Minnesota can afford with its current budget.
Thursday’s forecast isn’t the final word. Before lawmakers convene in March, the state’s experts will put out an updated forecast. It’s this figure, with several extra months of data, that will serve as the basis for taxing and spending decisions next year.
