Minnesota's state budget surplus is revised down to $900M

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Minnesota's projected state budget surplus has shrunk from previous estimates to $900 million.

In December, Minnesota Management and Budget (MMB) projected that $1.2 billion would be left over for lawmakers to spend in the 2016-17 biennium.

But on Friday, MMB's latest predictions for how much tax revenue the state will generate in the next two years has been slashed by a quarter, to $900 million.

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The projection is lower than three months ago because Minnesota's economic growth has slowed, reducing surplus tax revenues.

Despite this, the MMB says Minnesota is handling the current turmoil in the stock markets and the oil industry well, and the outlook for future budgets is "stable."

"Minnesota is weathering the recent global slowdown and slide in commodity prices reasonably well, a reflection of its large and diverse economic base," the report said. "Job growth has remained widespread, with recent gains in education and health services, retail trade, and financial activities.

"Improved homebuilding activity has also meant greater need for construction tradespeople like carpenters and roofers."

What caused the drop in surplus?

In its detailed budget document, MMB says the cut in budget surplus comes amid a weakening of the U.S. economic outlook, with depressed oil prices and a strong dollar having an impact on growth projections.

While less impacted by oil, the strong dollar has made things more difficult for Minnesota businesses, hurting the profits of corn and soybean farmers as well as manufactured exports, with businesses getting less for the goods they send to major trading partners Mexico and Canada.

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The mining industry has also been impacted by the global fall in steel prices, which has seen state ore manufacturers looked over in favor of foreign producers.

With economic growth set to be slower than initially thought, Minnesota anticipates bringing in $466 million less in tax revenues than previously predicted.

Most of this reduction is coming through sales tax, with consumers expected to spend less which in turn will generate $311 million less in taxes than expected. Meanwhile the state will take in $95 million less from individual income taxes and $93 million less in corporate taxes.

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However, officials expect conditions to improve part-way through 2016, saying that "steady" job gains, low energy prices and modest inflation should put more money into people's pockets, boosting consumer spending and homebuilding activity and – as a result – tax revenue.

Battle begins for how to spend surplus

Gov. Mark Dayton and leading Minnesota lawmakers including House Majority Leader Kurt Daudt and Senate Majority Leader Tom Bakk gave a preview of what they will discuss in the upcoming legislative session, which starts on March 8.

Much of the focus will be on how the budget surplus will be spent, with GOP lawmakers hinting it should be used for repairs to Minnesota's roads and bridges, in lieu of a gas tax championed by Gov. Dayton.

The Star Tribune points out that much of last year's budget surplus carried over to this year, as lawmakers couldn't agree on how to spend it during the last legislative session.

The surplus projected in December was $1.9 billion, but the amount actually available to spend was $1.2 billion, as a third of any budget surplus automatically goes into Minnesota's reserve fund to safeguard the state against financial crisis.

MPR reports that since Minnesota started turning around its budget deficits, some $1.6 billion has been siphoned into that rainy day fund.

Gov. Dayton is expected to release his full plans for the revised budget by March 15.

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