CHICAGO Minnesota now projects a $1 billion budget surplus for its current two-year budget cycle thanks to higher taxes and the state’s ongoing economic recovery.
The good news was delivered Nov. 5 when the state released its annual November economic and revenue forecasts. It’s one of two formal revenue forecasts that set the levels of funds available for state spending. The other is in February.
“The principal reason for this dramatic improvement is the stronger-than-expected growth of our state’s economy,” Gov. Mark Dayton said in a statement.
Revenues are now expected to grow by $787 million over previous estimates and spending is expected to drop by $247 million. Higher income and corporate income tax collections account for most of the surplus.
The first $246 million of the surplus will go to pay off the remaining amount owed to school districts. The state withheld $2.8 billion in aid to help erase a deficit in the previous two-year budget. That leaves about $800 million available. Dayton said he would wait for the February forecast before taking action on the surplus.
If the forecast holds, Dayton said he would propose the elimination of the state’s three business two business taxes effective April at a cost of $231 million for the biennium. “My other priority is a tax cut for middle-income Minnesotans by, for example, conforming to all of the federal tax cuts, which would cost about $205 billion for this biennium,” he said. That would include eliminating the marriage penalty and increasing the working family credit.
That would leave $388.6 million for other purposes. “I do not expect to make other specific proposals until after next February’s forecast,” he said.
The state has slowly been repaying the districts for aid withheld with improving revenues. The state closed out fiscal 2013 last June with a $636 million surplus that helped the state whittle down the balance.
Dayton signed a $38.3 billion two-year budget this year that used new tax revenues to end a past reliance on one-time revenues to achieve balance.
A new personal income tax bracket with a rate of 9.85%, up from 7.85%, is projected to raise $1.1 billion during the fiscal 2014/2015 biennium. Corporate tax changes and the tobacco tax hike will generate another $850 million. The new revenue will wipe out a $627 million deficit and pay for more spending on education, economic development, and fund property tax relief.
The state carries general obligation ratings in the high-double-A category.