Minnesota surplus up to $1.2 billion

ST. PAUL -- The Minnesota and national economies are growing and so is a state budget surplus, but an agreement about what to do with the surplus appears not to be growing so fast.

A report released this morning shows the state has a $1.2 billion surplus, $408 million more than predicted in early December. Minnesota Management and Budget reports that revenues are up $366 million from December projections and spending is falling slightly.

A $2.6 billion surplus is predicted for 2016-2017, a figure that does not include spending increases the Legislature and governor may approve.

A similar December budget and economy report, known as a budget forecast, showed the state with about a $1 billion surplus, which shrunk to $825 million after the state repaid schools money it had borrowed from them in recent years.

While legislative Democrats gave credit for the surplus to a $2.3 billion tax increase and other changes they passed last year, fellow Democrat Gov. Mark Dayton did not. Republicans took credit because of budgets they wrote or heavily influenced in recent years.

"Contrary to some people’s mythology, the budget surpluses forecast for this biennium and the next did not result from last year’s tax bill," Dayton told reporters during a conference call. "Those surpluses did result from thousands more Minnesotans working and earning higher incomes."

He singled out figures in the report that showed Minnesota employers added 3,500 jobs a month in 2012 and 3,800 last year.

"There will be time next fall to argue over who deserves what credit for these exceptional improvements," Dayton said about this year's election.

The state economist and Minnesota's top budget official said there is no evidence that the tax increase influenced the economy so far.

The surplus opens the door to increased spending requests, deeper tax cuts than already planned and adding more to the state budget reserve during the legislative session that began Tuesday.

In delivering the good financial news, Commissioner Jim Schowalter of Minnesota Management and Budget said: "I'm happy to be here to deliver this budget forecast, not the weather forecast."

He said the bigger-than-expected surplus is almost all due to an improved economy.

Minnesota State Economist Laura Kalambokidis said the harsh winter weather influenced the 2014 economy to begin on the soft side, but predicted that it will pick up.

All aspects of the state economy are improving, she said, other than federal government employment and manufacturing.

The forecast is important because it shows Dayton and legislators how much money they have available this year.

In the third day of the legislative session, Thursday, the House Taxes Committee approved a bill sending $500 million back to businesses and middle-class Minnesotans, eating up a portion of the surplus.

Dayton and House Speaker Paul Thissen, D-Minneapolis, said the tax cut should continue speeding along its way. Dayton strongly urged lawmakers to pass it by March 14, a month before income tax deadlines.

Senate Majority Leader Tom Bakk, D-Cook, said it may be too late for some of the tax bill to help people filing this year. He doubted that software could be upgraded in time to include any state tax changes that late.

Bakk and Thissen, standing next to each other after the forecast was released, disagreed on the importance of putting money into the state budget reserve.

Bakk and Assistant Senate Majority Leader Katie Sieben, D-Cottage Grove, said bolstering the reserve needs to be a high priority. Thissen, however, put more emphasis on giving the tax cut a quick ride and spending cash for things such as transportation.

Dayton plans to release his proposals for budget and tax changes next week, a plan legislative leaders will use to craft their proposals.

The Legislature and Dayton approved a $38 billion, two-year budget last year and only need to make minor changes this year.

The governor and legislative leaders warn groups against asking for money this year, saying that even with a surplus the state cannot afford expanding the budget. However, there seems to be widespread legislative support to spend more money on nursing homes and other long-term care programs, with a goal of increasing worker pay.

Minutes after the surplus was announced, a group pushing for more elderly and disability aid said it bolsters their chances. The 5 Percent Campaign is seeking $80 million to help 92,500 Minnesotans.

"A rate increase for home and community-based services is the major issue that wasn't addressed in 2013," bill sponsor Sen. Kent Eken, D-Twin Valley, said Friday. "Today's forecast tells us we have the resources to address this priority in 2014."

State Rep. Kurt Zellers of Maple Grove, a Republican running for governor, said that while the Twin Cities' economy is doing well, that is not happening elsewhere. "We need to make our entire state an engine of economic growth."

The forecast's $1.2 billion surplus is the biggest projected since February of 1999. Since then, the twice-a-year forecasts have shown mostly deficits.