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As economy recovers, DFL lawmakers press to fill state budget reserve

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Reserves chart
Budget reserve, 1996-2017.
Courtesy of Minnesota Management and Budget

Minnesota's rainy-day fund could get a major boost this year if the state's next economic forecast still shows a budget surplus when it's released later this month.

The fund sits at $661 million currently, slightly above what state law requires. With the state's economy on the upswing, some lawmakers say it's time to stash away more. Senate DFL leaders say increasing the state's budget reserve is a high priority for them in 2014. A bill has already been introduced in the House.

"I have a healthy reserve in my own checking account, most of the time, and I think the state could just as well run on that basis," said Rep. Ron Erhardt, who wants at least $2 billion in the state reserve. His bill would transfer 10 percent of every budget surplus into the rainy-day account, beginning in 2015, until the $2 billion target is reached.

The reserve hasn't kept pace with the growing state budget, said Erhardt an Edina Democrat who used to be a Republican.

"What do the Republicans always say? This is just like the family business, you sit around the kitchen table and decide whether you're going to spend or save," he said. "Well, I think we should sit around the kitchen table over here and decide we're going to save a little more."

Lawmakers have been talking about the need for a healthier reserve since the November economic forecast showed the state headed for an $825 million budget surplus DFL Gov. Mark Dayton said he wants much of the surplus used to repeal three business taxes passed last session.

But DFL Senate Majority Leader Tom Bakk said increasing the reserve should come before any tax changes. Senate Finance Committee Chairman Richard Cohen, DFL-St. Paul, is preparing legislation to increase the budget reserve account to $1 billion. He said the amount could be increased later if the projected surplus continues to grow.

"The legislation sends a message to the state, that what we would like to do is to achieve some strong fiscal balance. That's what's been missing for a number of years," Cohen said. "We have the money to make a difference. I think every significant economist and budget person in the state will agree to what we'll try to do in the Senate."

Minnesota Management and Budget Commissioner Jim Schowalter also wants more money socked away.

In a report to lawmakers last month, Schowalter recommended increasing the reserve account to $1.9 billion. He said the current level is well below what the nation's big bond-rating agencies view as "sound financial practice."

The Senate's top Republican, however, does not see the urgency.

GOP Minority Leader David Hann of Eden Prairie said he doesn't think state government needs to hold onto any more money.

"The surplus money ought to be returned to the taxpayers in the best way we can. It might be repealing some of the taxes we passed last session would be a good first start," Hann said. "We think that is more important than trying to build a huge reserve fund that may or may not be needed." 

So far, neither GOP nor DFL leaders have proposed any direct payments to taxpayers. Sales-tax rebate checks were sent out when Jesse Ventura was governor as a way to return some of the state's budget surplus. Bakk has said similar rebates are unlikely.

The legislative session begins on Feb. 25. Minnesota Management and Budget releases the latest state economic forecast Feb 28.