Minnesota projected to see $1.3 billion surplus thanks to increased revenues, spending cuts
ST PAUL -- Minnesota's finances are faring better than they appeared at the end of the state Legislature's 2019 special session, according to state financiers -- but that doesn't mean the state's high note will sustain forever.
The Minnesota Management and Budget released an updated fiscal year 2020-21 biennium revenue forecast on Thursday, Dec. 5. Thanks to improved revenues and decreased spending, MMB Commissioner Myron Frans said the state is projected to see a surplus of $1.3 billion in the biennium.
The surplus allows the state to automatically allocate more dollars into reserve funds, bringing reserves to an estimated $2.4 billion. Frans said it's the first time the state has met its target reserve goal since former-Gov. Mark Dayton in 2014 signed into law annual reserves targets.
Democratic Gov. Tim Walz on Thursday said "we can thank the people of Minnesota" for the healthy economy, with labor force participation above the national rate, high rates of in-migration compared to nearby states and a "hardworking population of entrepreneurs who understand what it means to invest in the future."
Though this year's $1.3 billion surplus may be appealing, Assistant Senate Minority Leader Susan Kent, D-Woodbury, cautioned Thursday that a surplus is like a yearly bonus, not a new salary.
"You're not going to go out and get a new mortgage with that," she said.
And if the economy takes a turn for the worse, a cushion in reserves could soften the blow. State Economist Laura Kalambokidis said nationwide, economic growth is slowing, with businesses postponing expansions amid an uncertain international trade climate and tariff war and the growth of individual households' incomes slowing down.
Democratic leaders also warned that with the state budget not taking into account inflation, the state's financial picture may not appear so rosy years down the line.
GOP: Give it back
Republicans saw Thursday's projections as evidence that the 2019 session's income tax cuts worked to kick-start the economy. And when the state has excess funds, Senate Majority Leader Paul Gazelka, R-Nisswa, said "it's time you give the rest back." Come 2020's legislative session, he proposed eliminating Minnesota's tax on social security income, providing Section 179 relief for farmers and an income rate cut for families. He also proposed one-time expenditures like school safety improvements or infrastructure repair.
Kalambokidis noted that though she saw above-average growth after Congress's Tax Cuts and Jobs Act, she has not yet seen an "inflection point" of economic improvement in Minnesota after its own income tax cut, and that the state's upward trends went into motion prior to 2019's cut.
Democrats and Republicans are similarly divided over what Thursday's projections mean for 2020's impending bonding bill. Walz said that the state's surplus shows that it can afford a "robust" bonding bill: With interest rates low thanks to AAA bond ratings from both Fitch and S&P (Moody's ranks Minnesota Aa1), he said now is the time to invest in "the building blocks that lead to strong economic growth and opportunities for Minnesotans," like education and infrastructure.
Republicans, on the other hand, said cash on-hand means that the state shouldn't be borrowing more money.
Both Walz nor Gazelka declined to specify their ideal bonding number Thursday, but Frans told the St. Paul Pioneer Press in September that MMB plans to "go big" in their bonding recommendation to Walz, "close to $2 billion" on public works projects. House Minority Leader Kurt Daudt, R-Crown, also declined to specify a number, but said House Republicans will back a "reasonably sized bonding bill."
"It's not going to start with a two, though, I can assure of that," he said.
As of September, local governments and state agencies have requested $5.3 billion in state bonding for public works projects next year.
Members of both sides of the aisle agreed that more than the total number, what matters most are the projects contained within the bonding bill. Gazelka said he'll be focused on funding projects with regional or statewide significance.
"It means making strategic and intentional investments in things that create opportunity for all Minnesotans, especially those who feel left behind in this strong economy," Walz said.