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State projects $329 million budget surplus in latest forecast

House Photography file photo

Updated 3:44 p.m.

The state has a $329 million projected budget surplus for the remainder of this biennium, Minnesota Management and Budget announced Wednesday.

In its 2018 February Budget and Economic Forecast, MMB said things have improved since November, when the agency announced Minnesota was projected to be $188 million in the red for the 2018-19 biennium, which ends June 30, 2019. The massive swing — $517 million — comes after the agency predicted $353 million more revenue than previously projected.

Legislators will use the forecast numbers to help shape policies for the remainder of the 2018 session, which ends May 21.

MMB, the state’s official budget office, cited “increased U.S. economic growth arising, in part, from short-term stimulus from federal tax law changes” and a $167 million decrease from November’s projected spending. Because of the federal Tax Cuts and Jobs Act of 2017, economists expect more money in consumers’ pockets, which, coupled with low unemployment rates, will encourage spending rather than personal savings.

House Speaker Kurt Daudt comments on the state’s projected $329 million surplus after the latest budget and economic forecast was released. Photo by Paul Battaglia

WATCH MMB officials present the economic forecast

“The fact is, Minnesota’s economy is in a great place,” MMB Commissioner Myron Frans said. “Minnesota has low unemployment and a growing economy. ... Minnesota’s budget is back on track."

Increased revenue expected on all fronts

While the individual income tax remains Minnesota’s biggest revenue stream at $23.71 billion — a $25 million increase over previous projections – it’s the corporate franchise tax that economists expect to see the biggest gain, from $2.46 billion to $2.59 billion — a $131 million growth.

MMB expects general sales taxes to increase by $119 million, in part because of the federal tax law, and a $78 million increase in “all other revenue.”

WATCH House/Senate Republican leaders react to forecast

“The hard work of Minnesotans boosted by Republican-led tax cuts at the federal and state level delivered good news today,” House Speaker Kurt Daudt (R-Crown) said in a statement. "While Minnesota Management and Budget continues to be overly pessimistic, we are optimistic about Minnesota's financial outlook."

A decrease in most spending helps

Gov. Mark Dayton responds to questions on the state’s projected $329 million surplus. Photo by Paul Battaglia

In January, Congress put more money into the Children’s Health Insurance Program (CHIP), so Minnesota won’t need to contribute as much as previously expected — a $254 million savings.

Additionally, MMB forecasts $54 million less in E-12 education spending because of savings in special education budgets and lower-than-expected compensatory aid, which is based on poverty concentration.

The forecast includes two bits of increased spending, however: The $115 million approved last week by the Legislature to fund itself and a law requiring a transfer from the General Fund to the Clean Water Fund.

Leaders react to the surplus

Asked how he plans to use the modest surplus in his March 15 supplemental budget, Gov. Mark Dayton told the media, he'll "have to look at what's fiscally responsible to do, given the situation," but didn't elaborate.

Republicans pointed to their tax-cut package last year, along with the federal tax plan, as reasons for the gains.

Daudt said that while he appreciates Dayton’s “prudence” in not wanting to reduce taxes, “the reality is the governor was wrong” and revenue increased despite the tax cuts.

“I think investing in Minnesota families was the right thing to do for the last budget, and we would like to see that continue.”

But House Minority Leader Melissa Hortman (DFL-Brooklyn Park) said Republicans were ignoring economic principles and that the tax cuts may result in a short-term stimulus but would be harmful over the long run. She said the state should be cautious with its budgeting and that Dayton was on the right track.

“The governor’s approach to budgeting has been vindicated in this forecast,” Hortman said. “It’s balanced and it looks to the future.”

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