CHICAGO — Minnesota now expects an $876 million surplus in its current two-year budget, news welcomed by lawmakers five months after an impasse over how to fully erase $5 billion in red ink that partially shut down the state government for 20 days.
The entire surplus will go to help restore reserves that are nearly depleted, management and budget commissioner Jim Schowalter said Thursday when he released the department's annual November forecast.
State statutes require that $621 million go into the budget reserve, raising it to $648 million, and $255 million into the cash-flow account, bringing it to $350 million.
If the surplus were larger, the additional funds would have helped reduce delays in payments to public schools that were pushed off to help balance the current budget.
Minnesota closed out its last biennium on June 30 with $358 million more in revenues than expected, and expenditures down by $205 million.
Projected revenues for the current fiscal 2012 and 2013 biennium are relatively on par with the last forecast in early March, but expenditures are expected to fall by about $348 million, resulting in the new surplus.
"This is obviously good news and a helpful break from recurring budget gaps," Schowalter said.
"It's also a reminder that Minnesota still has some significant strengths — above-average economic performance and the discipline to quickly stabilize its finances," he said. "Future risk remains, but at least we now have a cushion."
The state is expected to continue to outpace national economic growth but the forecast offers a gloomier and more uncertain future outlook.
Economic advisors predict a deficit looms in the next biennium of $1.3 billion. "Domestic economic and political uncertainties and Europe's sovereign debt problems" are contributing to the uncertainty that prompted advisor Global Insight to warn of a 40% risk of a 2012 recession.
The news of a surplus came as lawmakers instead were expecting the announcement that the state faced a new budget gap. Bitter differences over how to close the $5 billion deficit shut down most state operations in July.
Gov. Mark Dayton, a member of the Democrat-Labor-Farmer party, sought a mix of cuts and an income-tax hike on top earners to fully erase the deficit, while Republicans, who control the Legislature, refused to go along with any tax increase.
The two sides whittled their differences down to $1.4 billion through cuts and school payment delays, but they were stuck there until the governor agreed to go along with a Republican proposal for further school payment delays and a tobacco bond sale to balance the $35 billion budget.
The GOP agreed to several concessions, including passage of the $500 million bonding bill. The state recently sold $788 million of tobacco bonds for budget relief.
Republicans said the new forecast supports their position that the state could manage without a tax increase. "The Dayton tax plan is dead," said Republican Senate Majority Leader Amy Koch at a news conference following the forecast announcement.
Minnesota's heavy reliance on one-shots to balance recent budgets drove negative rating actions earlier this year.
Standard & Poor's lowered its rating one notch to AA-plus, chiding the state for its continued reliance on one-time financial maneuvers. Moody's Investors Service revised its outlook on Minnesota's Aa1 rating to negative from stable. Fitch Ratings downgraded the state's $6 billion of general obligation debt to AA-plus from AAA.
The restoration of some reserve levels should help ease pressure on the state's credit, as their depletion was cited as a challenge.
Without the distraction of dealing with a new budget gap, supporters of passing a publicly subsidized stadium plan for the National Football League's Minnesota Vikings expressed hope that a bill could be taken up on the subject in the coming months.