Finance officials say the latest revenue forecast shows Minnesota has nearly completed a budget turnaround. Four years ago, the state faced a $4.5 billion deficit, and lawmakers made budget cuts, spent the state's reserves and delayed payments to schools.
Now, the budget reserves have been restored, and the state is close to paying schools on time. The forecast shows a projected $181 million surplus, the result of higher-than-expected tax payments, and lower-than-expected spending.
NInety-three million of that is dedicated to the school repayment. The remaining $88 million could be spent this session, along with more than $300 million left over from the last fiscal year in a tax relief account.
"It's a very good piece of news," said Gov. Tim Pawlenty. "It reflects the state being in about as strong a fiscal position as it's ever been in."
But Pawlenty warns lawmakers should be cautious about spending the surplus. The extra money could be swallowed up by a judge's ruling that threw out the state's 75-cent-a-pack cigarette charge. The state has appealed the ruling to the Minnesota Supreme Court. But if it stands, it would mean the loss of about $200 million a year to the state treasury.
Finance Commissioner Peggy Ingison says right now, the state is still collecting the "health impact fee."
"As long as the money continues to be paid into the state, we're showing it coming into the state coffers in this forecast. We're making sure that everybody understands the potential risk of this," she told a news conference on Tuesday.
Ingison says if the state weren't collecting the cigarette charge, Minnesota wouldn't have a projected $181 million surplus, and would instead face a shortfall.
The forecast also notes that Minnesota's job growth continues to lag behind the national average. Democrats say the state's financial picture isn't as rosy as Pawlenty is suggesting.
The chair of the Senate Finance Committee, Rep. Dick Cohen of St. Paul, points to the jobs outlook and the uncertainty of the tobacco fee.
"The forecast, although slightly positive, is clearly only an inch deep in terms of the positive nature of it. Underneath that thin layer of ice are some very significant problems," according to Cohen.
Republican leaders mocked Democrats' pessimism, and say the state is on solid financial ground after years of reining in spending. Now that there's a surplus, leaders on both sides of the aisle are proposing ways to spend it.
Republicans are calling for tax relief and more spending to clean up polluted water, although House Minority Leader Eric Paulsen of Eden Prairie says everyone should lower their spending expections.
"I think there are a lot of legislators and friends of mine and friends of ours that would like to have their paws out for more money, and I think they need a tough love session. We just don't have enough money to engage in a spending spree."
DFL leaders are talking about property tax relief, more money for early childhood education, and a large bonding bill. The capital investment bill is the main task of the session, and the revenue forecast will spur calls for a larger bill.
Gov. Pawlenty is proposing a nearly $900 million package, and some lawmakers think the bill should be even bigger. Paulsen's "tough love" notwithstanding, there will be plenty of appetite for more spending, in an election year with all 201 legislative seats on the ballot.