Dear Neighbor,
Greetings from the Capitol. One of this week’s main headlines was the state’s February economic forecast it shows a $329 million surplus for the biennium ending in June of 2019.
This forecast shows a good surplus, in contrast to the November forecast, with a $518 million improvement on the bottom line. That increase marks the largest three-month gain our state has seen in 20 years. The estimate for the 2020-21 biennium calls for even greater improvement, with our economy surging from a $337 million shortfall to a $313 million surplus – a $650 million rebound. Other details include:
- Federal funding for children’s health insurance (CHIP), the Tax Cuts and Jobs Act (TCJA) passed by Congress in December, and lower than expected state spending are the key drivers in producing the surplus.
- Tax revenues are projected to be $353 million higher than what the November forecast indicated. Broken down, it reads:
- $25 million from individual income earners
- $119 million from the general sales tax
- $131 million of the increased revenues is from the corporate franchise tax
- $78 million is from “other” sources
Even with those positive developments, I think there are good arguments that the State Economist is pessimistic in these projections. For example, the state has actually taken in $420 million more than forecast in state income tax receipts in just the past three months, yet the State Economist is projecting only a $25 million increase in state income taxes for the next 1 1/2 years. Their argument is basically that all this money was people paying early to take advantage of the state income tax deduction available for 2017. Over the next few months as we get further information on state collections we will see if that is true.
For now, this surplus puts us in position for another successful session, including cutting taxes as part of passing tax conformity, doing a bonding bill, and dealing with other state needs. Issues like these will be a key focus from now until we adjourn in late May.
The state’s new vehicle licensing and registration system (MNLARS), which has experienced a disastrous launch, also was at the forefront this week.
Minnesota taxpayers have paid nearly $100 million over 10 years for a system that does not function and on Feb. 21 – just the second day of this session – the governor’s administration requested an immediate $10 million infusion to the project and indicated that without funding MN.IT will not be able to maintain current staffing levels on the MNLARS vehicle services technology team. They have now issued layoff notices to employees, though under the law it will be thirty days before these employees are actually laid off, so I believe work will continue and there is still time to reach an agreement on this subject.
Nevertheless, it is extremely disappointing to see gross mismanagement on this project bring us to this point. We all want MNLARS to work, yet the Dayton administration has failed to deliver a functioning DMV system.
The Legislature will continue working to restore trust and accountability, which means no blank checks and no $10 million transfers without the strong assurances and detailed plans we have requested but have yet to receive. It is my belief the Dayton Administration should find this $10 million within other budgets in state government over which they have control. In final negotiations last year, they were given far more than that in additional spending we did not think was needed as part of the negotiations for the tax bill and other issues, so I believe they can come up with this money from other sources.
Sincerely,
Jim