Minnesota projected to have $1.54 billion budget surplus

Minnesota will be flush with cash next year as state budget officials projected a major turnaround from multi-billion dollar deficits faced earlier this decade Thursday. 

State officials said higher-than-expected revenues and less state spending contributed to an estimated $1.5 billion surplus. In addition, the state’s cash reserves will stand at more than $2 billion next year, they said.

“I’m smiling today because this is really good budget news,” state budget director Myron Frans said during a news conference.

Far from celebrating, a disagreement broke out among top politicians over how to handle the extra money. Gov.-elect Tim Walz and legislative Republicans were split over potential tax increases or tax cuts during their dueling news conferences Thursday afternoon.

Even with a projected surplus, a gas tax increase should still be on the table to pay for ongoing road and bridge maintenance, Walz said. Republicans said the surplus could pay for one-time transportation projects, and said a tax increase wasn’t appropriate.

“As a result of this surplus, I think we can stop talking about raising taxes right now,” said state Rep. Kurt Daudt, R-Crown, who will be the minority leader next year.

Walz said the state needed a dedicated funding source for transportation projects, instead of relying on a surplus. State budget officials cautioned that Minnesota’s economy would slow over the next five years, hurting state revenue and cutting the size of future surpluses.

Senate Republicans, who retained control of their chamber, said next year’s projected surplus should be used partly for tax cuts. Senate Majority Leader Paul Gazelka said lawmakers would look at a child care tax credit or lowering rates across income tax brackets.

But Walz appeared to close the door on such ideas.

“We’ve followed those policies before and that gave, when Gov. Dayton came in, a $6.2 billion deficit,” Walz said.

Incoming DFL House Speaker Melissa Hortman tried to tamp down expectations on spending, whether on a tax cut or new programs. The projected surplus doesn’t take into account inflation or the potential for a looming recession, she said.

“It’s not a forecast that allows us to go into session and talk about a lot of spending and tax cuts,” Hortman said.

In addition, the surplus would be smaller if lawmakers and Gov. Mark Dayton had agreed on a supplemental spending bill this year, Frans said. Instead, Dayton vetoed the bill.

Dayton, addressing reporters in the state Capitol on Thursday for the first time since his 40-day hospitalization this fall, contrasted the state’s current situation with the one he inherited in 2011, when Minnesota faced a $6.2 billion deficit.

“I’m fortunate to have been governor at a time when this economic resurgence occurred, thanks to the people of Minnesota. That’s where the credit belongs,” Dayton said, when a reporter asked if the budget turnaround would be his legacy.

Dayton, who has long endorsed a gas tax increase to pay for road and bridge projects, repeated that support Thursday. Asked what advice he’d give to Walz about Republican opposition to the plan, Dayton said, “Get used to” it.

When Walz is sworn in on Jan. 7, he will lead the only state in the country with a divided legislature. For the last two years, Republicans have been in control of both the House and the Senate, but voters helped the DFL regain the majority in the House, setting the stage for what could be a contentious session.