Minnesota projects record $7.7 billion surplus, sparking debate on how to spend

ST. PAUL, Minn. (FOX 9) - Minnesota has a record-shattering $7.7 billion surplus, state budget officials project, setting the stage for lawmakers to debate how to spend it in 2022.

The Minnesota Department of Management and Budget released the projection Tuesday morning, basing it on strong growth in income, consumer spending, and corporate profits that have driven "extraordinary revenue growth" through higher-than-expected tax collections. Analysts also have an improved outlook for income, consumer spending, and corporate profits over the next two years, budget officials said.

But doling out the money won't be easy -- especially not in an election year when Gov. Tim Walz and all 201 seats in the state Legislature are on the ballot.

Speaking to reporters on Tuesday, Walz said Minnesota should use the surplus to give workers paid family and medical leave, boost early childhood education programs, and lower the cost of energy.

"It's crystal clear: our economy is strong and growing," Walz said while adding, "The stock market being up and a state having a surplus does not mean a working family has a surplus or things are perfectly rosy for them."

Republicans said they would push for tax cuts in 2022 to counter rising consumer prices.

"I stand here with a $7.7 billion surplus, why do I feel so bad?" said state Sen. Julie Rosen, the Vernon Center Republican who chairs the Senate Finance committee. "I feel really bad because of the hardworking, earnest everyday Minnesotans who need some relief."

One break sought by Republicans and the Minnesota Chamber of Commerce would plug a $1 billion deficit in the state's unemployment insurance trust fund. Without action, Minnesota businesses would face a payroll tax increase, which House GOP Leader Kurt Daudt called "unconscionable."

Walz appeared open to the discussion.

"We'll get that one fixed," the governor said, without elaborating whether Minnesota should use its surplus or federal money to do it.

House Democrats said they would push for an expansion of pandemic bonus checks to frontline workers. Lawmakers approved $250 million for the purpose last summer but have never reached an agreement on the size of the checks or who should get them.

"We have a lot more peanut butter to spread on the bread," said House Majority Leader Ryan Winker, DFL-Golden Valley.

Lawmakers return to St. Paul on Jan. 31 for the 2021 session. Yet even with a surplus of cash, it's possible they adjourn in May without deals to use any of it.

"Time will tell," Winkler said. "It’s certainly possible that we end without using this surplus to do anything meaningful for Minnesota, but I think that would be terribly irresponsible for all of us."

Both parties appeared ready to stick to their long-held policy positions.

"We will roll up our sleeves. We will work very hard at it. But we’re not going to waste money and we’re not going to continue to grow government," Rosen said.

The $7.7 billion projected surplus is in the state's general fund and does not include more than $1.1 billion in unspent federal COVID-19 relief. It's also on top of the state's $2.4 billion budget reserve.

Individual income taxes and the state's sales tax have been driving forces behind the stronger-than-expected tax collections in 2021.

The state's forecasting firm, IHS Markit, projects Minnesota average wages and salaries to grow at 8.5 percent for 2021 and 7.3 percent in 2022, the strongest in many years. That's largely because of the tight labor market: Minnesota has just six unemployed workers for every 10 job openings, IHS found.

IHS projected inflation -- which is eating up most of workers' wage gains in 2021 -- will settle back into the 2 percent range by early 2023. But this depends on an easing of supply chain disruptions and a leveling-out of the labor force, state economists cautioned.