Minnesota Gov. Mark Dayton and lawmakers have an extra $900 million to divvy up in the new legislative session.

CHICAGO – Economic strains are denting Minnesota's rosy revenue picture, giving state lawmakers less wiggle room on new spending, borrowing plans, and tax relief.

The state on Friday lowered its projected surplus to $900 million from $1.2 billion. Revenues in the current biennium that runs through June 30, 2017 are expected to hit $42.3 billion, down $427 million from the state's last formal forecast in November.

Spending will total $41.5 billion, down by $129 million due to healthcare related savings from increased federal funding, offsetting some of the lost revenue.

"The Minnesota economy continues to grow but at a slower pace," Minnesota Management and Budget commissioner Myron Frans said during a press conference.

The U.S. economic is weaker due to three negative influences: a glut of business inventories, depressed oil-related investment, and the drag on global trade from the stronger dollar. As a result, the state lowered its expected income tax receipts for the current biennium by $95 million, its sales taxes by $311 million, and corporate income taxes by $93 million.

The current projection also cuts into anticipated revenues expected in the next biennium as revenues are now estimated to exceed current law spending by $1.2 billion, compared to the $2 billion projection issued last November.

The state releases formal revenue projections in late November and late February.

Gov. Mark Dayton, a member of the Democrat-Farmer-Labor Party, and lawmakers will decide how to spend the remaining surplus during the state's legislative session that begins next week. "It's a reminder that we need to protect the fiscal integrity we worked very hard to achieve over the last five years," Dayton said of the new numbers during a news conference.

Dayton is expected to release a supplemental budget plan on March 15. He has named several areas where he'd like to increase funding, such as early childhood programs.

Republicans want tax cuts but the DFL is opposed.

During the session, lawmakers will also tackle passage of a capital budget. Dayton has proposed a $1.4 billion package, which is known as the bonding bill, and some key lawmakers believe the plan should now be scaled down. It's unclear what will happen on the transportation front. Dayton had proposed a gas tax hike but Republicans have proposed using the general fund to support increased transportation funding.

The upcoming session faces heightened political pressures because all lawmakers are up for election. The DFL holds a Senate majority and the GOP has a House majority.

Standard & Poor's last year revised its outlook on the state's AA-plus rating to positive from stable.

Fitch Ratings rates the state's general obligation debt AA-plus with a stable outlook and Moody's Investors Service rates it Aa1 with a stable outlook.

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