Minnesota Management & Budget on Thursday released an economic forecast for state tax collections and spending for the current and next fiscal biennium. The forecast shows a $1.87 billion surplus for the current biennium, which ends on June 30, 2017.
Current law requires one-third of that projected surplus to be put into the state’s budget reserve, increasing it to almost $1.6 billion. When the budget reserve hits $2 billion the automatic one-third surplus transfer requirement blinks off. The net effect for the 2016 legislative session is a $1.2 billion surplus to fight over. View Platform on the Issues. Learn more about the platform.
The positive forecast news was countered a bit with some key economic indicators suggesting lower wage growth, slower capital investment in the private economy and a weakened dollar hampering U.S. exports in the future. Still, last week’s forecast shows a projected ongoing $2 billion surplus for the ‘tails’ or fiscal years 2018 and 2019.
The forecast was met with differing views by political leaders in St. Paul. Gov. Mark Dayton credited Minnesotans and businesses with creating the strong budget news. House GOP leaders said the news shows that Minnesotans are overtaxed and called for a substantial tax cut bill in 2016.
The Governor is tempering expectations on a tax cut bill and making it clear that part of his intended legacy is sound fiscal management and an end to on-going budget deficits. He is also calling for a roughly dollar-for-dollar increase in education spending (primarily in early childhood education) for tax cuts. He also wants $100 million in community broadband access grant funding.
GOP leaders were able to claim an early victory heading into the 2016 session as Gov. Dayton declared his proposal for a gas tax increase as “dead” given the surplus news. That means transportation advocates will be clamoring to dedicate general fund revenues for roads and bridges in addition to any funding they get from the bonding bill that will be a major piece of the 2016 session.
Senate DFL leaders were surprised by Dayton’s dismissal of a gas tax increase, hoping it could at least be used in negotiations with the GOP on the size of a bonding bill and scope of tax cuts. For their part, Senate DFLers will be looking for property tax reductions given that local government levies are slated to grow $400 million next year. They’ll also be calling for some of the surplus cash to be used for transportation projects and a larger than normal bonding bill.
Update in February
The state will receive an update to this budget forecast in February as they head into a 12-week session starting on March 8, 2016.