State budget’s surplus to pay back school funding shift

by T.W. Budig
ECM Capitol Reporter

A big IOU to Minnesota schools will be repaid.

Release of the November state budget forecast on Thursday, Dec. 5, showed a projected $1 billion budget surplus. By current law, surpluses are automatically slated to erase remnants of the K-12 budget shift lawmakers crafted in less fiscally hearty times.

The shift once measured in the billions.

“We’ve seen it through,” Minnesota Management and Budget Commissioner Jim Schowalter said of paying back the school shift.

With the shift repaid and a $15 million debt to an airports fund made good, a $825 million projected surplus remains for the current two-year spending cycle, according to the budget forecast.

Although warning the state budget is volatile, state budget officials were upbeat about the state economy. Minnesota’s unemployment rate, 4.8 percent in October, is more than 2 percentage points lower than the national average.

The state has recovered the jobs lost during the Great Recession, officials say. The state’s mixed economy, doing well, is edging Minnesota forward, Schowalter indicated.

“We got good people,” he said of the state workforce.

Democratic Gov. Mark Dayton proposed to eliminate three controversial business-to-business taxes with part of the state budget surplus that brightened the release of the November state budget forecast. (Photo by T.W. Budig)

Democratic Gov. Mark Dayton proposed to eliminate three controversial business-to-business taxes with part of the state budget surplus that brightened the release of the November state budget forecast. (Photo by T.W. Budig)

Democratic Gov. Mark Dayton called the latest forecast “great news.” Like other legislative leaders, Dayton credited the reviving state budget to the efforts of business owners, workers and others.

“Credit is also due to the Legislature and my administration for setting a course of fiscal responsibility and sticking to it,” Dayton said.

A “blizzard” of spending proposals will likely be made, Dayton said, with the surplus.

Dayton offered some of his own.

He proposed elimination of all three controversial business-to-business taxes that Democrats voted into place last session. Getting rid of the three taxes will cost $231 million this spending cycle.

Minnesota Warehouse Association officials were pleased.

“Though the effective date was delayed until April 1, 2014, this terrible tax has already had a chilling effect on Minnesota’s warehousing and third-party logistics industry,” Association President Jonathan Lamb said.

Lawmakers should repeal the tax, Lamb argued.

Minnesota Chamber of Commerce President David Olson also called for scrapping the business-to-business taxes.

“The surplus removes any obstacles for repeal of these B2B taxes,” he said in a statement.

Dayton also proposed perceived middle-class income tax cuts by conforming to all federal tax credits, a move eliminating the marriage penalty and increasing the working family credit, he said.

The governor’s tax proposals, if carried out, would still leave $389 million on the table.

Dayton does not expect to make other specific spending proposals until after the February budget forecast, the forecast by which lawmakers set their fiscal compasses.

Democratic legislative leaders spoke of things getting back on track.

“This forecast also shows how the honest budget passed by the Legislature and the governor, without accounting shifts or gimmicks, has created the confidence and stability necessary for Minnesota’s economy to grow,” Senate Majority Leader Tom Bakk, DFL-Cook, said in a statement.

“Claims that new revenue in the DFL budget would cripple the state’s economy are simply false, and we are optimistic that Minnesota will continue to add jobs in the coming year,” he said.

House Minority Leader Kurt Daudt, R-Crown, described the November budget forecast as a “mixed bag.” (Photo by T.W. Budig)

House Minority Leader Kurt Daudt, R-Crown, described the November budget forecast as a “mixed bag.” (Photo by T.W. Budig)

Republican legislative leaders expressed tempered satisfaction over the budget news.

“Now is not the time for a victory lap,” House Minority Leader Kurt Daudt, R-Crown, said.

Minnesotans don’t care how much money the government has to spend, they care how much money they have, he said.

Republicans depicted the $2 billion in tax increases approved by Democrats last year – which included creation of a fourth-tier income tax bracket, a tax increase on cigarettes, and other revenue raisers – as unnecessary.

State Economist Laura Kalambokidis. (Photo by T.W. Budig)

State Economist Laura Kalambokidis. (Photo by T.W. Budig)

State officials described changes in state spending in the forecast as modest, about $247 million less than previously projected. Total state spending for the current two-year spending cycle is projected at about $39 billion.

The biggest gains in the state’s revenue forecast were income and corporate taxes.

“Corporate profits are running quite high,” State Economist Laura Kalambokidis said.

Schowalter indicated that he would like to see the state’s budget reserve beefed up.

“I would proceed with caution,” he said of managing the state budget. “(But) this is a good place to be.”

 

Tim Budig is at tim.budig@ecm-inc.com.

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