Surplus offers hope for Minnesota schools and communities

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Nobody expected this morning’s good news – that the State of Minnesota is projecting an $876 million surplus for the current two-year budget cycle (FY 2012-13). This gives the state the chance to take positive steps toward keeping our promise to our kids and protecting vital investments in our economy.

While it’s nice to have good news for a change, it is short-lived. The November 2011 Economic Forecast projects a $1.3 billion shortfall for the next budget cycle (the FY 2014-15 biennium), or $2.6 billion if we include the impact of inflation. So policymakers must be careful how they use these one-time resources. In the face of serious economic hard times in the last few years, lawmakers have depleted most of the state’s rainy day resources and resorted to significant borrowing, including from our schools. The best thing we can do is to start reversing some of those actions.

Fortunately, that is exactly what will happen with this surplus. As required by state law, the first $255 million of the projected surplus will be used to refill the state’s cash flow account and the remaining $621 million will go to refilling the state’s budget reserve close to its target of $653 million.

That is good news for Minnesota’s schools, because it brings us closer to making good on the state’s promise to pay back what it borrowed from our schools. After the state’s cash flow and budget reserves are refilled, by law, any future surplus will be used to start buying back the school payment shift.

Unfortunately, the slow economic recovery means the state is projected to face deficits again. Using the current surplus to rebuild our rainy day funds will allow us to avoid deep cuts to areas vital to our future economic success – like education and training for Minnesotans of all ages.

Decisions being made at the federal level pose an additional threat for Minnesota’s economic future. The November Forecast assumes that Congress will extend the payroll tax cut and unemployment insurance benefits that expire at the end of this year. If Congress fails to do so, we face the serious risk of another national recession. Furthermore, federal deficit reduction could result in the loss of federal funding for health care, education, and other community services are the critical for Minnesota’s future prosperity.

Although some may float the idea of using the surplus for other purposes, policymakers will be wise to stay the course and refill our rainy day funds to position us to weather the storms on the horizon.

You can get all the details on the November Forecast on the Minnesota Management and Budget website.

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