Minnesota trims its surplus expectations
Minnesota trimmed about $500 million off its previously projected $1.5 billion surplus in its annual February revenue forecast, putting a damper on some of the new spending and bonding proposed by Gov. Tim Walz.
“Minnesota’s budget and economic outlook has weakened since November” when the last formal forecast was published, according to Minnesota Management and Budget documents. “Slower projected economic growth and lower observed collections compared to prior estimates result in a reduced revenue forecast throughout the budget horizon.”
A slight drop in anticipated expenses partially offset the overall reduction in the projected balance that is now estimated at $1.05 billion. The projections cover the current fiscal year that ends June 30 and the next biennium that runs through June 30, 2021.
Total general fund revenues for the current biennium are forecast at $45.2 billion, $198 million less than the November forecast. Individual income and sales tax revenue forecasts are down while corporate income and other taxes were revised upward. Revenues in the next biennium are projected to reach $47.9 billion. The state expects to close out the current fiscal year with $2.4 billion in reserves, including a $350 million cash flow account.
The administration plans to revise the proposed budget as a result.
"It's a cautionary tale, clearly, when you take a half a billion dollars out of the projection," MMB commissioner Myron Frans said during a presentation.
Release of the forecast sets the stage for lawmakers to craft their own version of the next two-year budget. Last week, Walz released his first budget, a $49.5 billion spending plan that is up 8.6% from the current biennium. It would dole out more funds for education, transportation, and borrowing by tapping the budget surplus and raising the gasoline and other taxes.
Walz, who won the office in November contest, is a Democrat-Farmer-Labor Party member and the House is controlled by fellow DFLers. Republicans who hold a narrow Senate majority have already pushed back on proposed spending levels and Walz’s proposal to raise the gasoline tax by 20 cents per gallon.
Walz said Thursday he remains behind the gasoline tax hike and the need for more infrastructure spending despite the surplus drop.
Republicans said the surplus revision shows the need to hold spending in check.
"The last thing we should do is add permanent spending commitments to the state budget," Senate Majority Leader Paul Gazelka, R-Nisswa, said in a statement.
Walz also earlier this week unveiled details of his $1.27 billion bonding bill that relies on $1.02 billion of general obligation bonds with a small amount of cash allocated and small amounts issued the state’s appropriation credit and as GO trunk highway bonds.
On the bonding bill, the GOP is opposed to the timing, arguing the state should stick to its tradition which is to take up larger infrastructure bonding packages in the year following adoption of the two-year operating budget. In operating budget years, the legislature typically approves a more modest bonding bill.
The bonding bill would invest in colleges and universities and make “critical” infrastructure improvements statewide, with 22% of projects outside the Twin Cities, 27% in the Twin Cities area, and 51% having impacts statewide. The state has more than $3 billion in bonding capacity based on its self-imposed caps and two top ratings, Walz said.