Minnesota budget forecast shows $1.4 billion surplus

- Minnesota’s latest budget forecast and economic outlook shows a projected surplus of $1.4 billion. At current spending and revenue levels, the updated forecast predicts budget surpluses extending to 2021

The current biennium is now projected to end with a balance of $678 million, after the allocation of $334 million to the budget reserve required by state law. That will likely be the amount of money lawmakers will have to fight over as they're required to pass a two-year budget this session.  

When the state legislature adjourned last spring without passing several key spending bills, more than $700 million was left on the table. The November election gave Republicans control of both the state House and Senate, setting the stage for a contentious session between the GOP and Gov. Mark Dayton. 

Slower economic growth: The budget forecast warns that slower economic growth will result in a $467 million drop in fiscal year 2018-19 revenues from the previous forecast. The forecast predicts gross domestic product (GDP) growth of 2 to 2.2 percent, far below the 3 percent average for the 20 years prior to the recession.

Pay raises: "In this forecast, we expect growth in average annual wages to offset slowing employment growth, allowing total wage and salary income to grow modestly between 4 and 5 percent over the next several years."

Forecast doesn’t account for Trump presidency: According budget office,  the U.S. outlook was released on November 7 “and does not reflect possible post-election U.S. policy changes. There is considerable uncertainty in this forecast about which policy changes may be enacted in the coming years and the economic impact of those changes. IHS has said that they are examining the president-elect’s policy proposals and trying to determine their likelihood of enactment. As that becomes clearer, IHS will incorporate them into their forecast. It is likely that IHS’s assessment of the impacts of U.S. policy will change with each monthly outlook release until policies become more settled. Until then, the impact of potential policy changes on several key economic sectors—including energy, banking, international trade, health care, and immigration— remain sources of risk to this forecast.”

No deal on special session (yet)

The governor and legislative leaders met Friday afternoon to discuss an emergency special session. The meeting didn't result in a deal to pass bills on health care, bonding and taxes, but a working group will convene next week with a goal of a pre-Christmas special session.

Legislative leaders wanted to wait to continue discussions on a special session until the revenue estimates were released. An outline of an agreement on a session has been reached, but differences remain.

Gov. Dayton has proposed rebates to offset the expected rise in premiums for thousands of Minnesotans who purchase health insurance on the individual market, but who don’t qualify for federal subsidies.

“We've agreed to do the governor's proposal, we have not reached an agreement yet on whether to use General Fund money to do that or use money from the Health Care Access Fund, which is really intended for use on health care,” said State Sen. Tim Bakk, DFL-Cook, who is currently Majority Leader.

If a final agreement on a special session can be reached next week, Bakk said lawmakers hope to have legislation drafted by Dec. 16. That would give members time to review it before the session would begin on Dec. 20 or 21.

Statement from Gov. Dayton on surplus

“To put this report in context, six years ago, at the November forecast with which I took office, the projection was for a $6.2 billion deficit in the next biennium. We owed $2 billion to the schools, and there were numerous other shifts and gimmicks woven into the budget.

“Now, we have a projection of a $1.4 billion surplus for the next biennium, we owe nothing to the schools, $1.9 billion is parked in the budget reserve fund, and it's just a remarkable change from chronic deficits to a secure budget, fiscal integrity for the state, honest budgeting, and the like.

“What this forecast says to me is that we're in a time of continued economic insecurity, and these projections occurred before the election. And nobody knows what those impacts are going to be. We'll have a better idea at the forecast at the end of February.

“To me, it means that we need to be cautious and prudent, and recognize that our economic growth is constrained by the national economic growth—the forecast here is for continued growth, but to a lesser level than previously forecasted—and also, the ceiling in our labor force, which is really impacting businesses who want to expand, and there are just not the workers available to do so.

“So those are going to be our constraints under, really, the best of reasonable circumstances. This does not factor in the possibility of a recession, it does not factor in the possibility of some other serious economic dislocation. We obviously have both in our steel industry and in our agriculture industry. Those sectors of our economy in Minnesota, we need to do whatever we can, but frankly, the federal government is really going to be the impetus for the kind of recovery necessary in those two sectors. So, the things we can and will do within the state level, but we're also going to need some cooperative action from Washington.”

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