Minnesota surplus climbs again, to $9.3 billion

Minnesota budget officials said Monday that the state's projected budget surplus has grown to $9.3 billion, up from $7.7 billion in early December, setting yet another record for the largest in Minnesota history.  

Tax collections from higher income, consumer spending, and corporate profits added to the state’s rosy revenue projection, budget officials said, while sounding a note of caution about  instability caused by inflation and the war in Ukraine. 

Gov. Tim Walz called on lawmakers to triple the direct rebate checks he originally proposed. Walz's latest proposal is $500 for single filers and $1,000 for married couples. His plan excludes people who make more than $164,400 or couples that earn $273,470. 

"This gives us the opportunity to get those checks right in the hands of folks now," Walz said, noting that he has directed Revenue Department officials to start planning to get checks in the mail quickly if lawmakers approve them. "People need this before summer." 

For the first time, Walz expressed openness to individual income tax cuts, something Republicans have proposed. But Walz said he wanted it to be crafted in a way that excludes the highest earners, which the GOP plan does not. 

Republican Senate Majority Leader Jeremy Miller said the size of the surplus is "absolutely mind-boggling" and said it strengthens the argument for permanent income tax rate cuts instead of one-time checks. The Senate GOP has proposed cutting Minnesota's lowest income tax rate, which all filers pay on at least a portion of their income, nearly in half. 

"What Minnesotans should expect from us is ongoing reductions in the taxes they pay to the state of Minnesota," said House Minority Leader Kurt Daudt, R-Crown. "Anything short of that is a failure on our part." 

While the surplus has grown again, spending plans are running headlong into concerns about the Russia-Ukraine war and persistent inflation.  

Oil prices are nearing $100 a barrel, the highest level since 2014, amid the geopolitical instability. And annual inflation, which was 4.7 percent for 2021, is expected to be 4.5 percent for the current year, Minnesota’s economic forecasting firm predicts. 

Two top legislative Democrats, House Speaker Melissa Hortman and Senate Minority Leader Melisa Lopez Franzen, said lawmakers should be cautious about spending. 

"When this forecast was put together, that war was not on the horizon," said Hortman, DFL-Brooklyn Park. "We would be prudent to probably sock away a big chunk of it into budget reserves." 

The state already has $2.5 billion in its rainy day fund. On top of the surplus projection, lawmakers also have $1.1 billion in federal COVID relief money to spend. If they fail to do so by this summer, Walz will have control over it.

Budget officials barely had time to hit 'send' on their new projection before outside groups started lobbying Walz and lawmakers with ways to spend it. The Minnesota Chamber of Commerce called on the Legislature to immediately approve a $2.7 billion tax break for businesses to wipe away a looming tax increase on March 15 that's required to plug a hole in the state's unemployment benefit system. A bill passed the Senate this month. 

Labor unions said the Legislature should quickly authorize $1 billion to pay pandemic bonuses to frontline workers. Under a proposal that the DFL-controlled House passed last week -- which Senate Republicans oppose -- up to 667,000 workers would get $1,500 checks.

Monday, the divided Legislature appeared no closer to deals on either front.

News of a $7.7 billion surplus in December sparked multi-billion plans to spend it on tax cuts and new programs.  

Walz proposed spending virtually all of the surplus, $7.2 billion, over the next 18 months, with additional spending in future years. Republicans who control the Senate countered with their proposal to cut the state's bottom income tax rate. The tax break would cost $3.5 billion over the next 18 months and $8.5 billion over three years.