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Projected surplus grows to $1.2 billion

Minnesota’s budget picture continues to improve, and state officials now predict a $1.2 billion surplus during the current biennium. That amount is nearly 50 percent higher than the projected surplus figure released in November. Friday morning’s news immediately inspired a number of proposals for what to do with the state’s newly available funds, with some voices calling for major tax cuts while others pushed for an increase in the state reserves holdings.

Minnesota Management and Budget Commissioner Jim Schowalter said the state’s fiscal health is the strongest it’s been since at least 2007, and commented that the bottom line had probably not been this positive in the last 15 years. As usual, Schowalter cautioned against making any bold moves with the surplus, saying any decision that commits too much of the budget could have adverse effects on the next budget, which begins in July 2015.

“We know that’s where the most variation and the most risk is,” said Schowalter, who added that he would like to see at least some of the funds dedicated to increasing the state’s budget reserves, which currently stand at around $660 million.

Senate Majority Leader Tom Bakk took the announcement as evidence that the DFL majorities had been correct to pass new taxes last year, saying the state was on “very good footing” financially. Bakk said he, too, would like to see money funneled into the state reserve account, and argued that the surplus should increase the state’s debt capacity, enabling a larger capital investment bill than previously planned. Gov. Mark Dayton has introduced a $986 million bonding bill proposal for this session, but Republican leaders have said they would not agree to a package worth more than $850 million.

Bakk also took a cautious approach to future budget years, pointing out that the $2.6 billion surplus projected for 2016-17 is considerably smaller when spending inflation is included. He also mentioned an impending shortfall of about $650 million in the Health Care Access Fund (HCAF), and said the Senate plans to address that deficit at “some level” during this session.

House Democrats continued to push for swift passage of a tax bill that includes both federal income tax conformity and the repeal of a trio of business-to-business sales taxes. That bill, which would subtract about $500 million in revenue during this session, was passed in the House Taxes Committee on Wednesday, and House Speaker Paul Thissen said he wants to see the bill advance as quickly as possible.

“It is time to get that to the governor’s desk,” Thissen said.

Both Thissen and Dayton, who held a conference call with reporters to discuss the day’s news, are urging the Legislature to pass the bill by mid-March, before a warehousing services tax goes into effect, and leaving sufficient time before the income filing tax deadline of April 15. Bakk, for his part, said he did not feel the same urgency to approve federal conformity, and pointed out that tax filers could simply file an amendment after submitting their returns.

“I think it’s probably too late this year,” Bakk said.

Dayton read from a prepared statement during his conference call, saying credit for the belonged to the state economy, though he said economic development projects during his time in office have led to “more jobs and better jobs.” Dayton plans to submit his supplemental budget to the Legislature next week.

Both Thissen and Bakk anticipated that the good news would lead to an increased clamor from interest groups looking for spending investments that rely upon the surplus, but said they had worked to limit expectations.

“Our members understand that this is not a budget year,” Thissen said.

Republican leaders also welcomed the positive development, but instead made the case that the Legislature should send the surplus back to Minnesotans and businesses in the form of tax cuts. In unveiling the “Give it Back Act,” Senate Majority Leader David Hann and House Minority Leader Kurt Daudt put forth a plan that would repeal a number of taxes passed by the DFL majorities.

“But it’s not enough just to correct the mistakes that were made last year,” Hann said, explaining that the GOP would push for “permanent” tax relief this session.

Soon after the surplus estimate was announced, Sen. Richard Cohen, DFL-St. Paul, announced his plan to push for adding $340 million to the state reserves, which he said would prepare the state to weather any tumultuous economic conditions in future years.

“I have not yet discussed the details of my bill with leadership,” Cohen said, “but I know many in our caucus support raising the reserves to some level this year.”

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