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Minnesota’s budget picture has brightened in the near term but remains on shakier ground down the road.

The Department of Minnesota Management and Budget on Thursday announced that the state has a $3.7 billion budget surplus projected for the two-year budget that ends in 2025, up about $1.3 billion from the 

“The numbers speak for themselves of a humming economy,” Gov. Tim Walz said. “It is morning in Minnesota. We’re coming out of the pandemic, a global recession. Minnesota is well positioned for the future economy.”

The agency reports the boost came as a result of higher-than-expected consumer spending and corporate profit growth. But it also predicted that rougher financial waters are on the horizon. State spending projections remained mostly static.

For the current budget, the foundation is strong. But spending obligations would mean pressure on the next two-year budget — with the potential for a shortfall approaching $1.5 billion by 2027 — so officials have urged restraint.

“Caution should still be exercised this legislative session with regards to ongoing spending,” said MMB Commissioner Erin Campbell.

State Economist Laura Kalambokidis said the state’s outlook is positive but international conflicts, changes in inflation and potential lags in a federal budget could alter the trajectory. 

"This is welcome but a cautious, optimistic scenario that we’re in,” she said.

The forecast figure sets the tone for discussions during the remaining months of the legislative session, although leaders have already been trying to contain expectations on how much they’ll do between now and May’s adjournment.

In the 2023 session, the DFL-led Legislature passed a $72 billion two-year budget. DFL lawmakers said they’ll take a more modest approach this year and are expected to pass a supplemental budget bill and construction projects bill in 2024.

“It’s great that we have $3.7 billion in the near term,” said House Speaker Melissa Hortman, who added that the longer-term patterns are on her radar, too. “So I do not foresee making any commitments to spending that we can’t pay for.”

But DFL leaders also noted that the slight boost in projected revenue could give them room to pass a cash-only capital investment bill, additional funding for emergency medical services or other proposals that have come across their desks. The leaders also acknowledged that there would be challenging discussions ahead to determine what could ultimately win out for that limited funding.

Republicans, meanwhile, have said the DFL-led Legislature went too far last year. And they called for new tax rebates and state spending cuts to mitigate the impact.

The state’s rainy day reserves are fuller than they’ve ever been and now approach $3 billion.

House Republican Minority Leader Lisa Demuth didn’t wait until the report’s formal release to offer her reaction, saying the majority party was irresponsible last year.

“Today’s forecast shows that we are still on the verge of a deficit,” Demuth said. “When you look at your family budgets, if you are spending more than you are actually taking in that results in a future deficit. So despite a continually growing economy, there still isn’t enough tax revenue to meet the DFL spending demands.”

Senate Minority Leader Mark Johnson echoed Demuth and said that Republicans at the Capitol would limit new spending.

“Democrats continue to entertain more spending this session, while state officials, as we heard today, are urging caution on our state spending,” Johnson said. “This session we will hold the line on new spending and support a modest, common-sense bonding bill, given that it doesn’t max out the state’s credit card.”

Republicans have unique leverage on a capital investment bill — known at the Capitol as a bonding bill because it allows the state to take on debt to buy sell bonds. Their votes are needed to get a bill across the finish line. GOP leaders said they would prioritize roads, bridges and water infrastructure in a proposal.

Dana Ferguson

Author

Clay Masters

The much-anticipated economic report will guide the Legislature’s deliberations this session. Leaders of both parties were already calling for spending caution.

Minnesota posts $3.7 billion budget surplus, with financial pressure on the horizon

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Minnesota posts $3.7 billion budget surplus, with financial pressure on the horizon

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