In what will come as a welcome surprise to many, state budget officials are predicting an $876 million budget surplus for the remainder of the current two-year budget cycle.
The state released its November Economic Forecast, projecting a biennial budget surplus for the first time since February 2007. Minnesota Management & Budget Commissioner Jim Schowalter called it “a great respite from the cycles of bad budget news.”
“Overall, we still have issues, we still have risks, we still have concerns … but certainly it’s a good day,” Schowalter said.
According to the forecast, the surplus stems from higher-than-anticipated revenues near the end of the last budget cycle, along with slower growth in human services spending in both the previous and the current biennia. State Budget Director Margaret Kelly said the savings in human services are coming from slower-than-expected enrollment increases and a number of federal health care policy changes.
The long-term picture is not quite as cheery. The state still faces an estimated $1.3 billion budget deficit in the 2014-2015 fiscal biennium — a number that doesn’t account for an estimated $1.3 billion in inflation and more than $2 billion in outstanding K-12 school aid payment shifts.
Moreover, the outlook for the U.S. economy as a whole has worsened. State Economist Tom Stinson said the financial crisis in Europe and partisan gridlock in Washington, D.C., have lowered the prospects of significant GDP growth.
On the bright side, he said Minnesota is doing better than the nation as a whole.
“It’s not that we’re doing as well as we should … but we are outperforming the U.S. economy,” Stinson said.
House Speaker Kurt Zellers (R-Maple Grove) said the forecast proves that the Republicans’ agenda of reining in big government is paying off.
“This is what happens when there’s fiscal restraint, but also what happens when you reform government,” Zellers said.
House Minority Leader Paul Thissen (DFL-Mpls), noting that lawmakers relied heavily on borrowing to balance the state’s budget this year, played down the significance of the surplus.
“At the end of the day, it’s good news that we have this money in our savings account, but because we maxed out our credit card, those savings aren’t real,” Thissen said.
Under current law, the entire $876 million will be used to replenish the state’s budget reserve and its cash flow account. Asked whether they had any other plans for the surplus, such as using the money to provide tax cuts, Zellers and Senate Majority Leader Amy Koch (R-Buffalo) both said they thought the money should all go back into the state’s reserves.
“We don’t want to get ahead of ourselves. I think good fiscal restraint and planning for the what-ifs got us to where we are today,” Zellers said.
Gov. Mark Dayton credited the state’s Department of Human Services for helping to reduce costs. He said he would not recommend any changes to the current budget until after the February Economic Forecast is released next year.
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