Dayton talks tax relief as new forecast projects $1 billion state surplus

Gov. Mark Dayton. (Tim Nelson / MPR News File)

Just in time for Christmas, state budget officials say Minnesota is sitting on a big surplus.

New figures released today by Minnesota Management and Budget show the budget is running a surplus of  $1.086 billion. By law, $246 million of that must go to pay off remaining debt to schools, and after paying some other outstanding debts MMB officials say the surplus stands at about $825 million dollars.

Gov. Dayton was quick to say he would use part of that money to cut taxes for businesses and the middle class. He said he would propose using $231 million to repeal three new sales taxes on businesses passed earlier this year by the DFL-controlled Legislature.

The governor's plan for the surplus also includes an additional $205 million tax cut for the middle class.

That would include eliminating the marriage penalty, which would reduce state taxes for some 640,000 Minnesota taxpayers, Dayton said. "It would also include increasing the working family credit, which would lower state taxes for about 53,000 taxpayers."

That still leaves more than $300 million for lawmakers to work with when they reconvene in February. But Dayton said he’ll wait for an updated forecast in late February or early March before proposing any additional changes to the current two-year budget.

While Dayton had his eye on spending some of the surplus money, state finance officials counseled caution.

"This forecast shouldn't be mistaken for money in the bank," said MMB Commissioner Jim Schowalter. "We're still only in the fifth month of a two year budget, but one thing is clear: With this forecast we will have completely paid back our school shifts and replenished our reserves."

Schowalter and other budget officials credited an improved economy with more people working and making higher wages with the improvement in the state's financial outlook. Revenues were up by $787 over earlier projections and state spending was down by $247 million.

Democrats in the Legislature credited the state's residents and businesses for an improving economy.  After years of looking for short term ways to address budget crises, DFL House Speaker Paul Thissen said refilling budget reserves gives state leaders more options for how to move forward in the long term.

"What we've been forced to do is make short term decisions," the Minneapolis lawmaker said. "And now we can actually look and do the job that we really should be doing, which is what do we want to look like five and 10 years from now and what can we do today to make sure that we can get there?"

Republicans in the Legislature, who had earlier criticized Democrats for not fully repaying the delays in school payments, were left to speculate about how much larger the surplus might have been had Democrats not raised taxes during the last session.

"While Democrats are doing a victory lap because the state has more money, unfortunately Minnesota families aren't in that same situation," said House Minority Leader Kurt Daudt, R-Crown.

Senate Minority Leader David Hann, R-Eden Prairie, said Republicans would back Dayton's effort to repeal the business sales taxes.

The last time state officials projected a budget surplus was February 2012. The previous forecast, 10 months ago, showed a $627 million deficit, and the one before that showed a $1.1 billion shortfall.

Dayton and the Democratic majorities in the Minnesota House and Senate passed a $2 billion tax increase last session, which they said would help stabilize state finances. But those changes have only been in place since July, and the revenue impact from an income tax increase on top earners won’t show up in state accounting until next year. Republicans contend the tax increases will ultimately have a chilling effect on Minnesota’s economy.

The new forecast numbers will help state lawmakers begin their planning for the 2014 legislative session, which begins on Feb. 25.  The additional money will spur competition among interest groups. There’s already a push underway to give a 5 percent raise to group-home employees and in-home care providers.

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