Minnesota's budget surplus grows, but officials urge caution

Lawmakers have plans for the cash in what is an election year, but caution is being urged.
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Minnesota's state projected budget surplus has grown since the last update in November, setting up what is likely to be vigorous debate over how it should be spent in an election year.

Minnesota Management and Budget says the state's budget surplus projected for 2020-21 has risen to $1.513 billion, up $181 million from the November estimate.

The announcement has seen both Democrats and Republicans release their own plans for spending the surplus – a third of which will automatically go into the state's budget reserves – with the GOP calling for $1 billion of tax cuts, including by expanding tax relief on social security benefits.

But Gov. Tim Walz has called for a more cautious approach, wanting to replenish the state's rainy day fund further by repaying the $491 million that was taken out to strike a budget deal last year.

After that, he says he will focus on education spending, including providing more affordable school lunches, as well as putting more money into state disaster funds.

House Democrats meanwhile have hopes to spend $500 million to provide grants and loans for childcare providers, and childcare assistance for low-income families, per the Star Tribune.

But the in-depth budget papers urge caution with regards to surplus spending, not least because there have been signs of an economic slowdown, which could now be exacerbated by the outbreak of coronavirus.

The budget forecast doesn't include any of the possible disruption from coronavirus, though it notes it's expected to only have "temporary and modest impacts."

That said, the document says that if the nature of epidemic changes or it becomes more prolonged and widespread, it could have an impact on exports from Minnesota, particularly those sending crops to China.

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Speaking of China, the budget forecast notes the impact felt on soybean growers in Minnesota resulting from the tariffs placed on soybeans by the Asian nation, in retaliation to tariffs imposed on Chinese goods by the Trump Administration.

The budget document notes that there was a 1.5 percent increase in exports in the 1st Quarter, before the tariffs were imposted, but since then exports dropped 4.4 percent in Q2 and 2.2 percent in Q3.

But the tariffs are possibly benefiting Minnesota's Iron Range, with the budget document noting that "tariffs on imported steel may be boosting U.S. production and increasing demand for Minnesota-sourced ore."

The inflation question

Another thing to consider regarding discussions of how to spend the $1.5 billion surplus is that the surplus calculations don't take into account the rise in inflation for services Minnesota is already committed to providing.

MinnPost explains it in greater detail here, noting that the quirk in budget calculations date's back to Jesse Ventura's governorship, when the GOP-led House and Senate agreed to "omit inflationary increases in state spending for future budget periods, even while retaining such estimates for future tax revenue."

This in turn makes the budget appear to be balanced or posting a surplus, even though inflation may wipe out any such surplus. Ventura objected to this, but had his veto overruled in the Legislature.

A bill to end this practice was put forward last year by Rep. Jennifer Schultz (DFL-Duluth), and it could be discussed during this legislative session.

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