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Minn. Budget Forecast Shows $323M Surplus

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ST. PAUL, Minn. (AP) — The state of Minnesota’s economic outlook improved by $323 million on Wednesday, but the new money came with a warning for elected leaders: you can look, but you can’t touch.

The Minnesota Management and Budget office forecasted a spike in the state’s budget surplus, the second consecutive such report predicting that more money is being collected by the state than is being spent. It’s a signal that the state’s economy is slowly but steadily improving. But the new surplus can’t be spent on wish-list items or to offset tax cuts; rather, state law requires it be used to restore depleted rainy-day accounts and to settle debts with public schools owed billions in aid payments delayed as the state struggled to come back from recession.

“It’s further proof that Minnesota’s economic recovery is under way, slowly but surely,” said Gov. Mark Dayton, a Democrat. “We’re still, however, a long way from getting out of our financial hole.”

The modest size of the surplus, and the fact that it’s already spoken for, means the new forecast is unlikely to noticeably alter the course of the current legislative session. The state government’s increasing financial stability could give ammunition to supporters of more state borrowing to pay for new construction projects and to backers of state aid to build a new Minnesota Vikings stadium.

But even those who hailed the happy budget news were quick to note that “the state is a long way from being solvent,” in Dayton’s words. Of the $323 million, $5 million is earmarked for the state’s budget reserve; the rest, $318 million, goes to repaying schools for the delayed state aid. But that leaves about $2.4 billion still owed to school districts before they are whole again.

Lawmakers and former Gov. Tim Pawlenty, a Republican, started delaying aid payments to schools almost a decade ago, as a way to maintain a positive balance in the state general fund in a time of chronic budget deficits. Last year, Dayton and Republican lawmakers agreed to increase the size of the delays as a way to help erase a budget deficit of more than $5 billion. Since then, both Dayton and GOP leaders have decried their own compromise, as some school districts have been forced to borrow money as they wait for their delayed aid.

Still, Dayton said Wednesday he did not see a way to fully restore the remaining $2.4 billion owed to schools except for the continued, automatic diverting of future surpluses.

Republican and Democratic legislative leaders were in rare agreement that starting to pay back money owed to schools was welcome and should not be tampered with. “We really shifted our budget problem over onto public schools,” said Senate Minority Leader Tom Bakk, DFL-Cook.

Republican legislative leaders seized on news of the surplus as evidence that their attempts to instill frugality in state finances had paid off. “This says our fiscal discipline measures are working at the Capitol,” said Sen. Julianne Ortman, R-Chanhassen.

A previous surplus of $876 million, forecast in December, was used to replenish depleted state reserve funds.

State budget experts cited a handful of factors as responsible for the state’s economic turnaround. More than two-thirds of the $323 million, according to Minnesota Management and Budget, is attributable to lower-than-expected enrollment in the state’s Medical Assistance program for adults without children which resulted in $230 million in savings. At the same time, state revenues rose $93 million more than expected — largely from growth in income and sales tax collections.

“Generally, things look good,” said State Economist Tom Stinson. “The economy appears to be strengthening.”

(© Copyright 2012 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.)

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