Key economic report will guide Minnesota lawmakers through session’s end

Senate chambers full of senators
The Minnesota Senate begins their new session at the State Capitol Feb. 12. An updated economic forecast will indicate whether those concerns remain or have eased.
Ben Hovland | MPR News

Updated 1:15 p.m.

State lawmakers get fresh information this week about how much money they have to work with this legislative session and beyond. It’s a report that could either reinforce a cautious tone for the year or touch off a rush for any extra dollars. 

Minnesota’s projected surplus is nearly $2.5 billion for the current budget, but there have been concerns about what lies ahead after all of last year’s spending. State fiscal advisers say that balance dips precipitously for the next budget and could go into the red if lawmakers aren’t careful.

For months, DFL Gov. Tim Walz and leaders in the House and Senate have said they need a look at the updated economic forecast before making any major decisions.

This forecast marks a key milepost in a session just a couple weeks in.

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Senate Finance Committee Chair John Marty, DFL-Roseville, expects positive news but said it’s difficult to guess what that will look like.

“We had a lot of one-time money last time and we used that in a rational way,” said Marty. “But knowing that this year’s two-year budget cycle, we did a lot of one-time things in it. And knowing that the next two-year cycle is going to be less money than we have this time. And we planned it that way.”

In December, finance officials said the economy would continue to chug along in the near term but could face strains in the years ahead. 

“We are on strong financial footing,” Minnesota Management and Budget Commissioner Erin Campbell said at the time, pointing to reserve accounts pushing $3 billion. “Our sound fiscal policy and planning has led to achieving our largest budget reserve to date, which is evidence of strong fiscal management. It's important that we maintain that strong fiscal management going forward.”

That’s high on the minds of lawmakers. 

“Don't take the dollar sign at the bottom of the budget line when they come up with the new forecast and say, ‘Oh, we've got all that money and we can use it,’” Marty said. “It has to factor into the process and how we do it in a rational way.”

He said no matter what that number shows they’ll need to be very cautious with the money going forward. 

New Senate Majority Leader Erin Murphy, DFL-St. Paul, said she doesn’t like to predict budget forecasts and stresses the state budget must remain balanced. 

"When we have a balanced budget that's structurally intact it means that we can continue to build for the future of the people of Minnesota rather than have to undo things that are the result of a deficit,” Murphy said.

The national economy is showing some mixed signals at the moment and inflation is cooling not as rapidly as projected this month. The Federal Reserve continues to worry that inflation could stay stubbornly high. 

There was also a report from the U.S. Commerce Department that showed the nation’s economy grew at an unexpected 3.3 percent annual pace from October through November.  Americans were spending freely despite high interest rates. That includes Minnesotans.  

Republicans who don’t control any part of state government could use the forecast as a political talking point going into the 2024 election, arguing Democrats went too far last year. House control is on the line in November.

Rep. Pat Garofalo, R-Farmington, is his party’s leader on the House Ways and Means Committee and said the state is on an “unsustainable path of spending.”

“The more honest we can be with citizens before the election, the better off the state will be,”  Garofalo said. “But in terms of what to expect, the crew that's up here in charge right now, they like to spend money and you can expect they're going to spend a lot more.”

The budget forecast was originally set for a morning unveiling Wednesday, but the release of a full set of materials was pushed back in respect of the public funerals for the three first responders killed in Burnsville earlier this month. Officials planned to provide more timing details on Monday.