Minnesota received good news last week about its finances as the February Forecast showed a surplus of $1.65 billion. That’s an increase from the December projection of $1.4 billion.

About $740 million of the $1.65 billion surplus figure is a pile-up of revenue expected at the close of the current biennium on June 30. Another $920 million surplus is now projected for the next biennium, fiscal years 2018-19. CPI inflation for the next biennium is estimated at $1.1 billion so in relative terms the budget surplus can sustain inflationary growth across all budgets.

All budgets will not receive inflationary increases and certainly some areas of the budget are forecasted to grow much faster that CPI. The budget forecast shows Health & Human Services base growth at over 15 percent. E-12 expenditures are slated to grow by 4.8 percent.

E-12 Growth

Most of the E-12 growth is due to student enrollment increases, many of whom are low income and drive compensatory revenue. The expansion of Long Term Facilities Maintenance (LTFM) revenue is driving a portion of the E-12 increase. We’ll need to be diligent about LTFM as the legislative budget architects are looking at cutting back on growth areas in the overall budget. Learn more

Governor Dayton proposed a $600 million target to expand E-12 programs. The February forecast shows that his target is well within reach. However, the GOP will double down on their efforts to cut taxes. The Governor has indicated a willingness to sign a small tax cut package, one that includes Ag2School at 40 percent into law.

The Obstacles

The likely super-size of the GOP tax cut package will make a budget deal, and Ag2School, difficult this session. However, that’s not the only thing working against a tax and robust budget plan this year.

The prospect of a new round of federal tax cuts that Minnesota would need to conform to next session creates a dilemma for the state’s structural budget balance. When potential cuts to Medicaid funding are factored in there is much to be cautious about in terms of the state making major changes this session.

It’s the uncertainty with what the Feds will do on taxes, health care, trade, and other issues. That leaves a giant asterisk by the new and improved surplus figure.

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