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Minnesota forecasts $1.5-billion surplus ahead of 2019 legislative session

Governor-elect Tim Walz says on Thursday, Dec. 6, 2018, that parts of the state economy like agriculture are troubled even as much remains strong. Don Davis / Forum News Service1 / 5
The Minnesota Capitol in St. Paul. File photo. Special the The Forum.2 / 5
Minnesota House Speaker-designate Melissa Hortman said lawmakers should be cautious as the consider spending plans Thursday, Dec. 6, 2018 at the Capitol. Dana Ferguson / Forum News Service3 / 5
Minnesota House Speaker Kurt Daudt, who will become House minority leader next month, says on Thursday, Dec. 6, 2018, that some of the state's $1.5 billion budget surplus should be used for tax cuts. Don Davis / Forum News Service4 / 5
Commissioner Myron Frans of Minnesota Management and Budget announces on Thursday, Dec. 6, 2018, that the state has a projected $1.5 billion budget surplus. Don Davis / Forum News Service5 / 5

ST. PAUL -- A $1.5 billion projected budget surplus may look like good news for Minnesota, but state officials warn the picture may not be all that rosy.

The so-called budget forecast state finance officials released Thursday, Dec. 6, provides a tentative look at how much money available for Minnesota’s two-year budget that begins July 1. However, it does not include inflation that adds to state expenses and much of it is one-time money, funds that will not be available for future budgets.

House Speaker-designate Melissa Hortman, D-Brooklyn Park, said that while the news overall is good, there are “cautionary notes,” including an expected weaker economy after 2019.

“We cannot go into session looking at lots of (new) spending and tax cuts,” she said about the legislative session that begins at noon Jan. 8.

National factors such as a potential enlarging trade war with China could adversely affect the Minnesota economy so much that state revenues may fall.

When the $1.5 billion is combined with $491 million in current budget reserves, the state could have nearly $2 billion in the bank.

Republican lawmakers said the extra dollars should end discussion about increasing the gasoline tax or extending a medical provider tax, while Democrats including Governor-elect Tim Walz said lawmakers need to approach the extra funds with caution. Walz did not rule out seeking a general tax increase and said he expects to continue to seek a higher gas tax to repair Minnesota highways.

"One-time funding's not going to address this," Walz said of transportation needs.

When the newly aligned Legislature, with a new Democratic-Farmer-Labor Party-controlled House convenes in a month, lawmakers’ No. 1 job is passing a new two-year budget expected to top $45 billion. Republicans have a one-vote lead over Democrats in the Senate.

The surplus is projected both because the economy has produced more taxes than expected and Democratic Gov. Mark Dayton vetoed most spending-related bills earlier this year, leaving more money in the bank.

In a news conference, DFL legislators said debates on funding road and bridge repairs, health care and education would be top priorities.

But Republicans didn't mince words about their opposition to levying taxes when surplus funds could be used for a one-time infusion to transportation improvements or health care.

"I think we can stop talking about increasing taxes right now," Rep. Kurt Daudt, R-Crown, told reporters.

Daudt, the House speaker who will become minority leader, and Senate Majority Leader Paul Gazelka, R-Nisswa, said they would weigh tax cuts heading into the 2019 legislative session.

Walz must use Thursday’s financial report as he draws up his budget proposal, due to be released next month. However, he likely will need to revise the budget after a late-February budget report. Legislators also will use that February report to produce their budget plans.

The Legislature must pass, and the governor must sign, a budget by July 1 or state government will be shut down. The Legislature is due to meet until May 20.

Most budget forecasts during Dayton’s eight-year term have produced at least modest surpluses. While his aides give him credit for the good budget news, economists tend to look more at national economic trends when predicting the Minnesota economy and budget forecast. Dayton in 2011 entered office with a $6.2 billion deficit.

The leader of the Coalition of Greater Minnesota Cities said with the expected surplus, state leaders could be able to provide its members more Local Government Aid.

“City leaders in greater Minnesota were encouraged that Walz frequently campaigned on the idea of boosting LGA, and this new budget forecast will allow him to make good on that promise,” said Bemidji City Council member Ron Johnson, who is coalition president. “The CGMC’s top priority for the upcoming legislative session is a $30.5 million LGA increase, which is the amount needed to bring the program back up to its 2002 high-water mark.”

Republican House members took credit for the surplus, announced a month after they lost control of the chamber to Democrats.