Minnesota is projected to have a $2.4 billion budget surplus in 2024, but that’s far less hefty than the one lawmakers had to work with last year.
This time, state finance officials are warning that the money is getting tighter and a shortfall is not out of the question in coming years.
The mixed report left Governor Tim Walz and other Democrats urging restraint that might move some items off the legislative agenda next session.
House Speaker Melissa Hortman, DFL-Brooklyn Park, and Senate Minority Leader Mark Johnson, R-East Grand Forks, spoke with Cathy Wurzer about their parties’ plans for how to spend — and save — when the legislature reconvenes in February in light of the new forecast.
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Here are some highlights of the conversation:
This conversation has been edited for length and clarity. Click on the audio player to listen to the full conversation.
Reporters noticed you and other DFL leaders at the news conference Wednesday were resistant to acknowledging that a deficit is a distinct possibility. What are the politics of all of this, going into an election year when all Statehouse seats are up for grabs?
Hortman: I think that conversation was about the actual numbers in the forecast. And so it’s important to recognize that the forecast shows a surplus in the next two years, and then in the two years beyond that, and it assumes that we'll spend $880 million this year. So if we spend less than $880 million, then there's more cushion on the bottom line.
The other thing that’s important to note is the legacy of Mark Dayton. When he became governor in 2010, there was a big deficit, he had a Republican Legislature and he was intent on making sure no future policymakers ended up in that kind of a terrible fiscal position.
We have very strong reserves, we have more than $2 billion in reserves. So even if the economy dips and that’s something we, of course, can't control at the state level — the macro U.S. economy — we still will have the funds that we need to meet the obligations that we've made to grow in the middle class.
So, there’s no need for tax increases at this point. Is that right?
Hortman: That’s right. And we were really careful to conservatively budget in the out years. We had quite a bit of “one-time money,” and that’s a little bit more challenging to spend because what we want to do is make commitments that last over time.
So we constrained commitments that last over time, and we used the one-time money to invest in things that will make a difference in people’s lives, but that we knew we couldn’t sustain. For example, we dedicated a billion dollars to investing in housing, but we only have 50 million in dedicated state revenues for housing in the next biennium, acknowledging the nature of that one-time money.
What’s your reaction to federal taxes? Those state rebate checks?
Hortman: Well, I understand that we missed it by just a few weeks. The taxability and the benefits were affected by timing and it is pretty frustrating. But it’s a small amount of the rebate that folks are getting, and here at the state level, we’re not taxing that at all.
But that’s just one of the ways that folks got money back in their pockets. You know, child care costs have decreased because of our investment in child care. So I think Minnesotans are seeing more money in their pockets because of a lot of different state investments in addition to the rebate checks.
I think you said with the November projections that the state’s budget is broken. In what areas do you think Democrats went too far?
Johnson: I think when you look at the budget report, it’s pretty eye-opening. When Republicans were in charge in the Senate, back in 2017-2022, we built up what’s called a structural balance, that’s where revenues exceed our expenditures, which is, for a family or any business, that’s what you need to do to make sure you can survive.
And so in the February forecast, we had the projected structural balance going forward, but in one session, the DFL has taken our structural balance and reversed it. So instead of a surplus, between the revenues and the expenditures, it's actually negative by $10 billion.
So the only way that they’re able to say ‘we have a surplus’ is because they’re raiding the bank account. So the years that we have put money aside that we haven’t spent more than what we have taken in, now we’re rating that so we can cover our bills for the upcoming biennium. But going out further, clearly, we have to make some changes, to make sure that we can pay the bills going forward.
So it’s a lot of semantics that I think that Democrats are using right now to cover up some of those huge issues that we have underneath the surface.
I asked the Speaker about the out years and she said a few minutes ago that the long-term spending commitments will hold up, they are funded. Are you disagreeing with that?
Johnson: Very much. I mean, if you go and look at the budget package that was handed out by MMB, yesterday, you can go and look for yourself and the numbers that those are negative. We've got some structural issues in this state. And that all happened within one session last year when DFL took control of both the House and the Senate, and then they also had the governor's office.
So we’ve got to make some real changes going forward in order to make sure that Minnesota is sound again, and that’s where we are extremely concerned for the state. For making sure that we can afford things like our public safety, making sure it’s world-class, making sure we can do the right investments in education.
Those are the things that we need to be focusing on. And yet, we’ve taken Minnesota's ability to really invest in that and jeopardize that in this last budget.
Gov. Walz said the Legislature is going to have to triage given the limited funding. But if you were to spend something, what would be on the Republicans’ urgent list?
Johnson: We need to really look at where can we reprioritize our spending. And I think we really need to look at the things are big government needs to be doing, making sure that infrastructure in this state is high class, making sure that that people can move around the state, and goods and whatnot can move around the state.
Making sure that our communities are safe. Making sure our kids have the best education in this nation. So we’re going to look at policies that prioritize the things that Minnesotans want. And that's really what we want to make sure happens next session.