Budget forecast with a surplus offers a respite from gloomy financial news

Projection says state will be in the black by $876 million

by T.W. Budig
ECM Capitol Reporter
The first positive state budget news in four years had lawmakers smiling at the State Capitol on Thursday, Dec. 1.
Democratic Gov. Mark Dayton called the November budget forecast, which shows the state’s last two-year budget cycle closing in the black and coupled with lower projected spending creating a projected $876 million budget cushion, “terrific news.”
“I was surprised, too, about this,” said Dayton at a Capitol press conference.
Many at the Capitol feared the newest forecast would show the state again confronting red ink. It didn’t happen.
State revenues over recent months had been running above projections, noted Minnesota Management and Budget Commissioner Jim Schowalter. Further, health and human services spending — actual and projected — showed a total decrease of $457 million.
“Overall, we still have issues,” Schowalter said of the state budget. “But certainly, it’s a good day.”
By law, the $876 million projected surplus for the current two-year spending cycle will automatically flow into the state’s cash flow account — some $255 million — with the rest flowing into state budget reserve.
“It can be kept safe there,” said Senate Majority Leader Amy Koch, R-Buffalo.
Had the projected surplus been larger, dollars would have been automatically dedicated to buy back a portion of the more than $2 billion in existing K-12 education funding shifts. But the surplus dollars didn’t go that far.
Indeed, the forecast projects a $1.3 billion budget deficit looming for the state in future years.
“There’s still plenty of risk out there,” explained State Economist Tom Stinson.
Stinson points to the debt crisis in the European Union, which is already probably in recession, he said, as potentially hurting the U.S. economy.
Another economic flash point could be Washington, where the payroll tax credit, which is making payroll checks a little larger, will expire on Jan. 1 without action from lawmakers, he noted.
“In economic terms, that is non-trivial,” Stinson said of the perceived negative impact expiration of the payroll tax credit would have on the economy.
Economic recovery from the “Great Recession” continues at a slow pace. And the economic future remains uncertain.
Global Insight, the state’s economic consultant, projects slow economic growth all the way through the current two-year spending cycle.
In its last forecast in February, Global Insight projected about 3 percent growth in U.S. economic over the biennium, but has downgraded that to 1.7 percent. It sets the risk of a 2012 U.S. recession at 40 percent.
Still, the Minnesota economy is doing better than expected, Stinson noted. The real explanation the state has fared better than other states over past months in terms of employment is the quality of its workforce, he said. And the economic future remains uncertain, he said.
Businesses lay off the best workers last, Stinson said.
Both Stinson and Schowalter said they believed the best use of the projected surplus was to leave the money exactly where it was.
Stinson, when asked how many positive state budget forecasts it would take for the bonding agencies to upgrade the state’s fallen bond credit rating, gave one-word answer. “Lots,” he said.
Dayton and Republican legislative leaders said that were in no hurry to grab the projected $876 million surplus for other uses.
House Speaker Kurt Zellers, R-Maple Grove, deemed it “very premature” to talk about spending — Koch, when asked about a possible bonding bill, spoke of controlling spending.
Dayton indicated he would not recommend any budget changes until after the February 2012 budget forecast, pointing out that last year the projected budget deficit in the forecast shifted by $1 billion over three months.
He urged caution.
“We’re not out of the fiscal woods by any means,” Dayton said.
Still, the favorable budget news may mean lawmakers could have more time to jointly work on government reform initiatives, Dayton explained.
Dayton was unwilling to indicate the size of the bonding bill the administration would pursue — the second year of the legislative session is traditionally a bonding year.
Schowalter said the state budget currently would allow for a $775 million bonding bill.
Both Dayton and Republicans took credit for a brighter state budget, Dayton crediting Human Services Commissioner Lucinda Jesson with budget reforms in human services and Republicans suggesting their spending constraint contributed towards budget improvements.
Partisan barbs were exchanged.
“The Dayton tax hike plan is dead,” Koch said.
Dayton spoke of Republican legislators’ “devotion” to protecting millionaires.
“Let them take that to the polls next November,” Dayton said of perceived Republican extremism.