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Surplus leaves Minnesota state leaders happy but concerned

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Surplus leaves Minnesota state leaders happy but concerned
Detroit Lakes Minnesota 511 Washington Avenue 56501

ST. PAUL -- The revelation of an $876 million Minnesota budget surplus was a shock to most around the Capitol Thursday after government observers predicted a deficit of up to $1 billion.

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A smiling Commissioner Jim Schowalter of Minnesota Management and Budget announced the surplus saying, "Certainly, it is a good day."

The projected surplus is the first since 2007 and follows a series of deficits that included a $5 billion hole left unplugged for 20 days in July during a government shutdown.

While there were more smiles in the Capitol Thursday than usual, the good news came with plenty of warnings.

Gov. Mark Dayton called the announcement "terrific news," but moments later added that it is "no time to celebrate."

"We're not out of the fiscal woods by any means," he said.

For one, Thursday's "budget forecast" is just an early preview of a figure due in late February. State leaders will use that figure to make any budget changes in the legislative session that begins Jan. 24.

"I will not recommend any adjustments ... until after next February's forecast," Dayton told reporters.

No plan of action

Despite the surprising surplus, Minnesotans should not expect a return to the old days of higher state spending.

For the time being, the projected surplus will stay in the bank, a move state economist, Tom Stinson said would be the best use of the money.

But politicians who control the purse strings would not commit Thursday to either a spending, or saving, plan of action.

House Speaker Kurt Zellers, R-Maple Grove, said that it is premature for Republicans to say if they would use the surplus for anything, such as business tax cuts.

Senate Majority Leader Amy Koch, R-Buffalo, shot down one way the surplus could be used: to fund a proposed Vikings football stadium. Koch wasted no time saying that the money was not available for a stadium.

Dayton said the surplus would at least give him more time to work on the stadium issue instead of dealing with a deficit.

Current law requires the surplus to be used to refill state reserve and cash-flow accounts. It would take an agreement between Dayton and the Legislature to do otherwise.

Warnings

According to Stinson, the projected forecasts are not guaranteed and a budget surplus could easily dry up.

Nationally and internationally, "I think the situation is getting a little dire," he added, with some predicting a European recession will affect the United States. "There is a real possibility this could go bad."

State leaders, aware of the fact that circumstances could change by February, were hesitant to count their chickens, going so far as to issue the following warnings:

-- A $1.3 billion deficit is expected in two years.

-- The Minnesota economy could take a turn for the worse if the European economy stumbles.

-- The budget surplus depends, in part, on the continuation of a federal tax cut established in the President George W. Bush years.

Lower spending

The surplus was credited in part to lower-than-planned spending on health care programs. Plus, state revenues were $348 million more than planned last year.

Human Services Commissioner Lucinda Jesson said fewer people received state-funded health services than anticipated, and more cost-effective ways of doing business saved $308 million.

"We are starting to bend the cost curve on the fastest-growing part of the state budget, the health and human services budget, and we are doing so at a time when more and more people are turning to public programs," Jesson said.

Part of the improvement in health care spending came as a result of new programs monitored by state officials. Officials have also done a better job of predicting the need for future funding, thus lowering the amount of aid requested from the state.

At what expense?

Democrats and several special interest groups said the surplus came at the expense of their programs.

"There is no doubt that the state budget was balanced on the backs of Minnesota property taxpayers," said Worthington, Minn., Mayor Alan Oberloh, president of the Coalition of Greater Minnesota Cities. "State policy makers should take a deep breath, put the money in the bank, and wait until the February forecast to determine if this surplus is real."

If it is real, the mayor said, state leaders should use the money to relieve property tax increases.

Stinson said Minnesota's economy is doing better than the national numbers because it has a highly educated and productive workforce. The state is expected to continue outperforming the national economy, Stinson added.

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