MINNEAPOLIS (AP/WCCO) — Minnesota’s budget outlook has swung from a $1.3 billion deficit to a $1.6 billion surplus, state economists announced Friday, setting up the debates for the rest of the legislative session over taxes and spending.

Minnesota Management and Budget said in a statement that projections have improved due to an improved U.S. economic outlook, which has been bolstered by stimulus measures the federal government has taken since the state agency issued its last forecast in November.

The budget agency said it no longer anticipates a $1.3 billion shortfall for the upcoming two-year budget period, which begins July 1, and is now projecting a $1.6 billion surplus because of a higher revenue forecast, lower projected state spending, and an increased surplus for the current fiscal year, which ends June 30.

But the agency also cautioned that improvements have not been spread equally because unemployment continues to disproportionately impact lower-wage workers.

“This budget forecast is good news for Minnesota,” said Gov. Tim Walz. “It proves that the measures we took during the pandemic have both saved lives and protected the economy.

“Our state budget reflects our shared values, and we must ensure that we support those who have borne the greatest burden,” said Senate DFL Leader Susan Kent in a statement. “To do this, we need to make investments so that Minnesota can recover from the pandemic, address the growing disparities in our state, and build for a strong future for all. This may require additional funding by asking the wealthiest and most profitable of Minnesotans to pay their fair share.”

Budget officials and Walz planned to release additional details later Friday.

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In response to the updated budget forecast, Minority Leader Kurt Daudt, R-Crown, released a statement arguing against any push by Democrats to raise taxes during the legislative session. Earlier this year, Walz had called for an increase in taxes on Minnesota’s highest earners to cover the state’s pandemic recovery.

“Raising taxes will slow our economic comeback, and make it harder to bring back jobs and paychecks to where they were before the pandemic,” he said.

The budget forecast was grimmer in January when Walz made his two-year $52.4 billion proposal in which he focused on COVID-19 recovery, summer programs for children and direct assistance to Minnesota’s poorest families. To pay for it, he called for a series of tax increases totaling $1.6 billion on Minnesota’s wealthiest individuals.

Republicans were quick then to reject any tax hikes.

(© Copyright 2021 CBS Broadcasting Inc. All Rights Reserved. The Associated Press contributed to this report.)