Minnesota finance officials are projecting a second consecutive budget surplus. The new economic forecast released Wednesday shows a $323 million cushion for the current two-year budget cycle.
It comes just a few months after Minnesota Management and Budget Commissioner Jim Schowalter announced an unexpected budget surplus of $876 million.
That was the first surplus in four years, and state law required the money be used to restore the state's depleted cash-flow account and budget reserves. The trend of reduced state spending and better-than-expected revenue collections has continued since December, but Schowalter said the 1 percent improvement in the forecast is also spoken for under state law.
"That anticipated $323 million balance does not stick around long. It immediately goes to replenish the state's budget reserve and then starts to repay some of the school shifts for our K-12 institutions," he said.
Those delayed payments to schools helped DFL Gov. Mark Dayton and Republican legislative leaders erase a $5 billion deficit and end a government shutdown last summer. They also tapped other one-time money as part of the fix. That's why another modest surplus has not yet put state finances back on solid ground for the long term.
Schowalter said the new forecast projects a $1.1 billion deficit by fiscal year 2014. That's a little better than the $1.3 billion projected in the last forecast, but he said it still presents big challenges.
"We were able to balance this year's budget, if you'll recall, with sizeable one-time resources from the tobacco bonds, from the school shift. Those aren't there in 2014-15, but the obligations and the continued programming is," said Schowalter. "So as a result, we have a structural balance that we're going to have to resolve."
The February forecast traditionally sets the tone for the rest of the legislative session. Gov. Dayton, who praised the forecast as further proof of the state's economic recovery, said he would unveil a supplemental budget proposal next week. Dayton didn't offer details, but stressed that any new spending this session must come with strict fiscal discipline.
"So I will hold myself and will hold the Legislature to the principle that any additional spending in this session, or any additional tax reduction in this session, has to be fully offset in this biennium and the next biennium," he said.
Dayton said his unsuccessful attempt last year to raise income taxes on the wealthiest Minnesotans would have resulted in a larger surplus now and no projected deficit in 2014. He said he'll put that plan back on the table next session.
Not surprisingly, the Republican leaders who fought against that tax increase see things differently. They acknowledged the improving state economy, but Senate GOP Majority Leader Dave Senjem of Rochester said the surplus is also the result of their good fiscal management.
"We worked very, very hard during the course of last session to set us on this course," said Senjem. "The course has been established. The plan is working. It's reflected in these numbers here, and we're excited. We're proud. We're happy. Things are moving in the right direction for Minnesota."
Republican House Speaker Kurt Zellers said he, too, likes the budget course state government is now on, and he insisted his members aren't looking to spend any new money this session. Zellers said average Minnesotans should also be proud of the surplus they helped create.
"This is hardworking Minnesotans producing more income, more revenue for the state of Minnesota," said Zellers. "We thank them for that, and we'll continue to do our job to manage our fiscal house in a way that produces even bigger surpluses."
Zellers said he still wants to cut some business regulations this session. He also wants to pass some policy measures aimed at improving public schools.
A modest bonding bill is also likely, but beyond that Zellers said there isn't a lot of work left to do this session. He's pushing for an adjournment by mid-April, and said he's not interested in waiting around for a Vikings stadium bill.