Good news: Minnesota expects $876 million surplus

Published 11:57 am Thursday, December 1, 2011

ST. PAUL, Minn. — Minnesota budget officials estimated a surprise $876 million surplus for the rest of the state’s two-year budget on Thursday, easing fears of another bruising political fight just months after partisan deadlock over how to close the last budget deficit led to a partial shutdown of state government.

Predictions at the Capitol had been pessimistic, with red-ink estimates ranging from $500 million to $1 billion. But revenues came in $358 million higher than expected and spending was $205 million below earlier estimates, budget officials said.

“This is obviously good news and a helpful break from recurring budget gaps,” Jim Schowalter, the state’s budget commissioner, said in a statement accompanying the forecast. “It’s also a reminder that Minnesota still has some significant strengths — above-average economic performance and the discipline to quickly stabilize its finances. Future risk remains, but at least we now have a cushion.”

The forecast wasn’t all sunny. It projected a deficit of $1.3 billion for fiscal years 2014-15.

Most of the reduced spending was in Health and Human Services, the forecast said. It did not detail reasons for the lower spending. Budget officials were discussing the forecast at a midday news conference.

The Legislature convenes Jan. 24. The economic forecast will be updated again in February, when it will be used to guide Gov. Mark Dayton and political leaders in budget talks.

Legislative sessions held in even-numbered years have typically only dwelt on budget issues in the event of deficits. Unless the February forecast reverses the surplus, lawmakers and Dayton could avoid a clash. It might even leave breathing room for a rare early adjournment of the Legislature, given that all 201 legislative seats are on the ballot next November and lawmakers will be scrambling to adapt to new turf created by the once-a-decade redistricting process.

Supporters of public funding for a new Minnesota Vikings stadium are likely to relish Thursday’s news, given previous fears that another state deficit would make it hard for lawmakers to back state money for a private businessman’s project. While stadium supporters had been hoping for a special legislative session for a stadium vote prior to Jan. 24, the forecast lack of a looming deficit will leave much more room for stadium politics in the regular session.

By law, surpluses are supposed to go into two state funds: a budget reserve and a cash-flow account. It’s the first state forecast to cough up a surplus since 2007, as the state reeled from the national recession.

The last budget forecast, in February 2010, presented Dayton and lawmakers with a $5 billion projected deficit. It eventually led to a months-long standoff between the Democratic governor and Republican legislative leaders.

While Dayton sought a mix of spending cuts and income tax increases on wealthy earners to erase the deficit, Republicans united against any tax increases and said Dayton was not willing to cut deeply enough. Their dispute dragged past the scheduled end of the legislative session in late May, and finally resulted in a 20-day government shutdown that began July 1.

In the end, Republicans avoided backing any tax increases, but Dayton avoided some of the deepest proposed cuts with a compromise package that included borrowing on future proceeds from state tobacco settlement bonds and delays in state aid payments to school districts.