State has $7.7 billion surplus; line forms for share of money

The Minnesota Capitol
The Minnesota Capitol, where lawmakers are likely to have a big budget surplus awaiting them when they begin the 2022 session.
Andrew Krueger | MPR News file

Updated: 4:15 p.m.

Oodles of money are piled up in Minnesota’s state government accounts, giving the Legislature plenty to spread around in the 2022 session and adding another layer to next year’s campaign themes.

The Department of Minnesota Management and Budget projected Tuesday that the state has a $7.7 billion surplus in the general fund. Strong growth in income, consumer spending and corporate profits drove extraordinary revenues in fiscal year 2021, according to the department, and higher tax receipts are expected to continue with the improvement of the economic outlook.

In percentage terms, it amounts to 15 percent of the current spending in the two-year budget adopted this summer.

The forecast provides a look through the end of the current budget in mid-2023 and the two years beyond. The estimate will be apart from roughly $1.2 billion in federal COVID-19 relief funds headed the state’s way and not directed yet to a specific purpose.

A bar graph of revenue fund surplus
Minnesota projects a $7.7B general fund surplus. Strong growth in income, consumer spending and corporate profits drove extraordinary revenues in FY21.
Courtesy of Minnesota Management and Budget

“This is good news for Minnesota,” said DFL Gov. Tim Walz Tuesday. “This is what responsible policies look like. This is what happens when you invest in people.”

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Walz suggested the money could be used to provide Minnesotans with paid family and medical leave, improve child care and health care, lower the cost of energy, and possibly create a family leave program for workers.

The fiscal gusher will undoubtedly feed calls for tax cuts, increased payments to schools and additional programs to help people regain their footing after the long pandemic. 

“The top priority of Senate Republicans this session will be to provide additional tax relief to Minnesotans across the state,” said Republican Majority Leader Jeremy Miller of Winona.  

House Republican leader Kurt Daudt said the state should be careful about creating new ongoing spending programs.

"Let's not overspend. Let's not overreact. Let's work together to decide the right approach,” he said. “And yes, we do believe that government is collecting more money than it needs from Minnesotans. That's a fact.”

Daudt added that tax cuts are a better idea when many Minnesotans are facing higher prices for gas and groceries. He also said he wants to replenish a fund that pays for unemployment benefits so that businesses won't see a tax increase to do it.

Minnesota Management and Budget Commissioner Jim Schowalter said while COVID-19 isn't over yet, the economy appears to be learning how to handle it. 

"The $7.7 billion bottom line in today's forecast is out of the ordinary even in these extraordinary times,” Schowalter said. “The state's fiscal position is strong and we have the opportunity to take actions unimaginable last year."

Still, there are some risk factors in the forecast: The continuing fight with COVID-19 is one. Supply chain issues, inflation, interest rates are others. No one is certain what will come of a major federal spending plan being debated in Washington. Oil prices and labor market trend lines are additional things to watch.

None of the leaders who spoke Tuesday was rushing to say they’d try to divvy up the entire amount. The word caution was used quite a bit.

Senate Finance Chair Julie Rosen said she doesn’t want to build up a state budget she thinks is already too big.

“I stand here with a $7.7 billion surplus, and why do I feel so bad? I feel really bad because of the hard-working, earnest, everyday Minnesotans who need some relief.”

Business groups are already lobbying to head off a hike in unemployment taxes set to kick in to refill a fund drained over the past two years, and House Republicans are on board with that idea, saying it would block a tax increase on businesses of up to 15 percent. 

Asked about the fund on Tuesday Walz responded, “We’ll fix it.”

Other Democrats took credit for the surplus. 

“Democratic policies work. When workers, families and small businesses get help, the economy booms,” said House DFL Majority Leader Ryan Winkler on Twitter. “This is the time to double down on our support for working Minnesotans with paid leave, child care, housing, infrastructure and better schools.”

Not all of the money the forecast estimate is built from has actually materialized, and lawmakers won’t get to dictate where all of it goes.

By law, some dollars are taken off the top to bolster dedicated funds, pay off accounting shifts and restock the reserves. That could mean hundreds of millions of dollars are locked up before the Legislature does a thing. Without that law the surplus would have been even bigger.

Some $870 million were shifted into the state’s rainy-day reserve, bringing it to an all-time high of $2.6 billion.

State leaders, including Walz, planned to discuss the forecast report later Tuesday and lay out their initial priorities.

Lawmakers don’t return to the Capitol until Jan. 31, and they’ll be aiming to finish by mid-May to hit the campaign trail. The governor’s office and all 201 legislative seats are on the line in November.