As state budget surplus swells, lawmakers divided on how to split it

Sen. Bakk
Senate Majority Leader Tom Bakk talks with fellow Senators and media during the first recess of the 2014 legislative session in St. Paul, Minn. Tuesday, Feb. 25, 2014.
Jeffrey Thompson/MPR News

Minnesota lawmakers now have a projected $1.23 billion budget surplus to work with during this election-year legislative session.

A new economic forecast released Friday showed the state with $408 million more than the previous forecast late last year.

Despite that healthy cushion, Democrats who control the House, Senate and governor's office still aren't on the same page on how much to spend. House and Senate DFL leaders on Friday were pointing to the two-year budget they passed last year as a factor in the state's improved fiscal picture.

But House Speaker Paul Thissen of Minneapolis and Senate Majority Leader Tom Bakk of Cook still have different ideas on what comes next. All 134 House seats are on the ballot in November. That's not the case in the Senate.

Thissen said he wants to move quickly this session to pass a $500 million tax package of cuts and a repeal of three new business sales taxes passed last year. "To keep this middle class economic recovery going, now is not the time just to stuff cash in the bed cushions," Thissen said.

Bakk still appears to favor mattress stuffing over tax cutting.

He wants to use a big part of the surplus to boost the state budget reserve as a hedge against future economic downturns. Bakk said the new forecast makes some proposed tax cuts more likely, but he's taking a much slower approach than the House.

"I don't know what all the other needs are yet," he said. "How much should be committed to one-time spending, and how much money do we want to commit to ongoing spending? We have not had that conversation yet."

DFL Gov. Mark Dayton is running for a second term this year, and he wants legislators to pass tax cuts quickly. He set a March 14 deadline to help Minnesota tax filers get more deductions and exemptions, and to prevent a warehousing tax from taking effect on April 1.

With the size of the surplus now clear, Dayton said there is no reason for delay.

"There's enough room there for a very significant tax cut, which is what the House is proposing. I'll have some other areas that I would probably add to that," said Dayton, who plans to send his own budget ideas to the Legislature next week. "There's still room to do that and look at adding to the budget reserve."

Dayton said the surplus is the result of an improving state economy, not the tax increases he signed into law last year. Minnesota Management and Budget Commissioner Jim Schowalter, his top finance advisor agreed, adding that the new forecast was one of the best in many years.

"It is kind of like having shock absorbers on the car again, so when you're hitting the potholes you don't feel it quite as badly," he said. "I think the most important thing for government is to not to make dramatic changes every year."

After the updated forecast showed a bigger surplus, Republicans on Friday met reporters with a big sign that said, "Give It Back."

They claimed the forecast is a validation of the tax and spending restraint they showed when they controlled the House and Senate in 2011 and 2012.

The entire surplus should be returned to taxpayers, GOP Senate Minority Leader David Hann of Eden Prairie said.

"State government doesn't need the surplus. Families need the surplus. Taxpayers need the surplus," he said. "Let's give the money back. Let's get it into the economy."