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Minnesota posts massive $7.7 billion budget surplus, kicking off debate over tax cuts, new programs

The record-setting figure kicked off debates Tuesday, Dec. 7, about how lawmakers should spend the money in the upcoming legislative session.

ST. PAUL — Minnesota budget officials on Tuesday, Dec. 7, announced a record-shattering $7.7 billion budget surplus, spurring mixed reactions about the excess funds the state took in from taxpayers and corporations.

The news also prompted immediate debate about how lawmakers should spend it in the upcoming legislative session.

Minnesota Management and Budget officials said that despite the impact of the pandemic in Minnesota, the state reported higher than expected growth in personal income, consumer spending and corporate profits so far this year. And economic predictions suggested that the rosy conditions could continue into next year.

At the same time, the state spent less of its $52 billion two-year budget than experts expected to on education since enrollments shrunk compared to expectations and on health and human services programs. The state has learned to manage as the pandemic continues to bear down on the state, they said. And while economic success has varied across sectors and different income levels, the overall economy has overperformed in the face of uncertainty.

"All this good news might lead some to think that this wild ride is over, but as our hospitals remind us, COVID-19 is still here and still dangerous; however, our economy is learning how to adapt," Minnesota Management and Budget Commissioner Jim Schowalter said.

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The economic projections set the stage for back-and-forth arguments in the divided Statehouse about how to spend the excess funds and promised to become a central theme of the 2022 election cycle. Some of the funds are already earmarked by law to refill the state's rainy day fund. And the $7.7 billion figure didn't include billions of dollars in additional federal funding for COVID-19 relief or infrastructure projects in Minnesota.

Minnesota Management and Budget Commisssioner Jim Schowalter on Tuesday, Dec. 7, 2021, presented the state's budget forecast, which included a record-breaking $7.7 billion surplus. Dana Ferguson / Forum News Service

Gov. Tim Walz and Democratic legislative leaders on Tuesday celebrated the surplus and said it stood as a testament to the state's successful response in managing the COVID-19 pandemic. And they urged lawmakers to use the money to add additional supports for workers and families in the upcoming session like paid family medical leave and additional funds for child care.

"It's crystal clear o ur economy is strong and growing," Walz said, noting that his administration's actions to quell the spread of the coronavirus hadn't stalled out the economy. "I made it very clear early on that ... was a false choice that you could do those things and protect and grow the economy and today's numbers support that."

Walz said he remained open to proposals that could help make "historic" investments in the state and kept the door open on tax relief for some Minnesotans. He also said the state would work to pay back the state's unemployment insurance trust fund account. Currently, a tax hike on business owners is set to take effect later this month to generate that money.

Republicans, meanwhile, said the state shouldn't grow state programs but instead use the money to offer tax relief of some kind to Minnesotans through offsets on energy and gas taxes or a state tax on social security benefits. And they said Democratic policies had spurred the over-collection of Minnesotans' tax dollars.

"I will tell you we stand here with a $7.7 billion surplus, but why do I feel so bad? I feel really bad because of the hard-working earnest everyday Minnesotans who need some relief," Sen. Julie Rosen, R-Fairmont, said. "We want to give relief to the everyday person in Minnesota, they deserve it because the cost of living is increasing."

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Ahead of the announcement, several groups made pitches for where the money should go. Business groups urged lawmakers to prevent an increase in their taxes to pay back the state's unemployment insurance fund, school leaders asked for more money to cover the cost of declining enrollment and senior housing groups urged the Legislature to put in more recruitment and retention incentives for caregivers.
Additionally, hospital leaders asked for funding to relieve their financial struggles and labor groups asked the Legislature to approve a large slate of infrastructure projects around the state. Several also called on lawmakers to reach a deal to send out hero payments to workers who'd remained on the job in frontline positions during the pandemic.

Negotiations over how to send out $250 million to frontline workers stalled out, preventing a special legislative session.

State economists said their projections for economic growth and increased wages into 2022 and beyond could be stunted by a continued surge in the COVID-19 pandemic. The state's macroeconomic consultant ran reports for the state last month before the Omicron variant was detected in Minnesota and beyond.

Ongoing problems with supply chains, growing inflation, workforce participation and other factors could also impact some of MMB's predictions, they said. Lawmakers said they would approach the extra money with caution until additional economic projections came out in February.

Minnesota lawmakers are set to return to St. Paul for the 2022 legislative session on Jan. 31 and they'll have debt capacity to approve up to $3.5 billion for a bill to fund infrastructure projects around the state, along with additional money to approve a supplemental state budget.

Follow Dana Ferguson on Twitter @bydanaferguson , call 651-290-0707 or email dferguson@forumcomm.com

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