Minnesota expected to have historic budget surplus of $ 7.7 billion

Minnesota economists on Tuesday predicted a surplus of $ 7.7 billion in the state’s biennial budget, the largest surplus in state history and one that quickly fueled competing demands for dollars.

“COVID-19 is still here and still dangerous, but our economy is learning to adapt,” Management and Budget Commissioner Jim Schowalter said. “The state’s capacity to maintain services, to respond to emerging needs, is constantly improving.”

Strong growth in income, consumer spending and corporate profits generated high incomes in the past fiscal year, according to state economist Laura Kalambokidis, and high tax revenues are expected to continue as the outlook continues to grow. economic improvement in the future.

Meanwhile, estimates of state spending in education, health and social services, and other areas are down slightly.

The state has reported months of higher than expected tax collections since the start of the two-year budget cycle on July 1 and is in a much stronger financial position than economists predicted when the COVID-pandemic 19 struck for the first time and a budget deficit was expected. .

“It’s an incredible turnaround,” said Schowalter.

But the rise of delta and omicron variants, continued inflation, and global supply chain issues make future economic growth difficult to discern. The state’s macroeconomic outlook, which forms part of the basis for Tuesday’s forecast, was created in early November before the emergence of the omicron variant.

Nonetheless, economists said the improving outlook is expected to continue into the next budget cycle in 2024-25.

Tuesday’s review is the first deep dive into the state’s and country’s economic outlook since February, as well as estimates of the state’s future spending and revenue.

The budget update will lead to spending conflicts when lawmakers return to the state Capitol on January 31, and many officials and advocacy groups are already suggesting ways to use the excess funds.

“This is a golden opportunity,” Gov. Tim Walz said of the surplus, adding that he wanted to give a helping hand to struggling families while investing in the middle class. He said his spending priorities include paid family and medical leave, helping caregivers, and reducing health care and child care costs. He also wants to tackle climate change and gun violence, he said.

The Minnesota Chamber of Commerce and Republican lawmakers are pushing the state to use surplus dollars, or remaining federal aid in the event of a US Rescue Plan pandemic, to pay off Minnesota’s debt to the federal government to cover unemployment insurance payments to workers who have been sidelined. Otherwise, businesses could face significant increases in payroll taxes to cover debt and interest payments, and to restore the state’s unemployment insurance trust fund.

“While the government is bursting with cash, the Minnesotans are still grappling with inflation to thirty-year highs, gasoline prices rising 50% or more and a sticker shock on their oil bills. energy, “minority parliamentary leader Kurt Daudt R-Crown said in a statement. declaration. “This record surplus gives us a real opportunity to help make Minnesotans’ lives more affordable and prevent Governor Walz and the Democrats from raising taxes on struggling businesses later this month.”

DFL lawmakers stressed on Tuesday they wanted to prioritize spending to help frontline workers, families and children.

“This is an opportunity to address the real issues facing families and workers across the state, such as the crisis in accessible child care and the lack of affordable housing,” said Senate chief. DFL Melisa López Franzen of Edina in a statement.

Many groups lobbying on Capitol Hill, from local government groups to hospitals and state colleges, have added ways to spend the money to the list. Members of the construction union called on the state to spend the surplus on improving infrastructure, and school advocacy groups called for more spending on education and to help students recover from the pandemic. Environmental organizations said the money should be used to tackle climate change and ensure safe drinking water.

The budget update leaves out certain elements of the state’s economic situation. It focuses on changes to the general state fund and does not include federal pandemic dollars, management and budget officials noted. Inflation is not included in the estimates for most government spending, an omission all the more noticeable as prices have risen.

The strong forecast also triggers a statutory allocation of funds to the state budget reserve, officials noted, increasing the reserve balance to more than $ 2.6 billion.

This is a developing story. Check back to startribune.com for updates.

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