Economists predict a $1.4 billion surplus; MN leaders make plans to spend it

Monday, December 5, 2016

On Friday morning, state officials predicted Minnesota would have a $1.4 billion budget surplus. By the afternoon, Gov. Mark Dayton and bipartisan legislators were close to spending half of it.

Almost immediately after the budget forecast was announced, Dayton and legislative leaders huddled behind closed doors to rehash several issues that had bedeviled them for months.

Just over an hour later, they emerged with smiles: They were close to a deal for a special legislative session this month to quickly offer some hard-hit Minnesotans health insurance premium relief, and pass tax cuts and infrastructure spending.

“I think we’re close. I think we can see an agreement,” said House Speaker Kurt Daudt, R-Crown.

The wrinkle in the good cheer: This bipartisan deal could cost about $700 million — half the total $1.4 billion surplus lawmakers have for the entire two-year budget they have to craft this spring.

The remaining surplus would still be enough money to fund some big new programs or tax cuts next year — but not nearly enough to pay for everything either Democrat Dayton or the Legislature’s new Republican majorities want to do.

Both sides need to agree on a budget by mid-May or Minnesota state government will shut down, just like it did in 2011 when Dayton similarly faced a GOP Legislature in a budget year.

Within minutes of the $1.4 billion projected surplus being announced, they were already drawing battle lines.

Dayton said the relatively modest surplus and uneasy economy means “we need to be cautious and prudent,” and his budget commissioner advised against drastic measures that could threaten the state’s surplus.

Daudt, in contrast, called for significant tax cuts to “get more money into Minnesota family budgets,” along with significant infrastructure spending and aggressive cuts in other areas of government. Sen. Paul Gazelka, the Nisswa Republican recently chosen to lead the Senate majority next year, took a similar position.

Both Dayton and Daudt have said bipartisan compromise will be necessary to strike a deal — and put the onus for such compromise on the other party.

PREDICTION REMAINS UNCERTAIN

Even before lawmakers and Dayton came close to cutting a deal to spend money in the potential Dec. 20 special session, budget officials were rife with cautions on their surplus predictions.

The $1.4 billion surplus is a slight decrease from projections last May. Though the state’s health care spending is growing more slowly than anticipated, that’s more than offset by a decline in state sales tax revenue.

While Dayton has to prepare his budget plans in January, lawmakers will use an updated budget forecast in February to make final decisions about how much money to raise and spend in the next two years. A lot could change in those few months, and the next projections will almost certainly look much different than Friday’s estimate.

The state’s economic analysts, for instance, did not calculate the impact of the incoming Trump administration. If President-elect Donald Trump and the Republican Congress make major changes to the nation’s tax, health care, infrastructure or trade policies, that will trickle down to Minnesota’s budget.

For the moment, the state is stable — the November forecast and Minnesota’s economy look pretty similar today compared with two years ago, as it continues a slow but steady expansion. But state economist Laura Kalambokidis noted a new recession is a significant possibility.

“Slow growth and mature expansion makes an economy more vulnerable to shocks, reducing its capacity to weather an unexpected downturn,” Kalambokidis said.

‘WEDNESDAY IS THE DEADLINE’

The forecast announcement — and a raised-voice conversation that preceded it — made possible the renewed plans for a special session later this month.

“We have been kind of holding our breath waiting for today’s forecast to see if this was even going to be possible,” to resuscitate the tax bill Dayton vetoed because it contained an error and the statewide building projects measure the 2016 Legislature failed to approve, said current Senate Majority Leader Tom Bakk, who will become the minority leader next year. “The door would have been slammed today had the forecast gone south on us.”

But the forecast showed some stability, so lawmakers feel more confident the state can afford the tax and borrowing bill as well as provide state subsidies for Minnesotans caught in the middle on health insurance. Those Minnesotans are too rich to qualify for federal subsidies but not rich enough to afford skyrocketing premiums coming to those who don’t get their insurance through public programs or their employers. That relief needs to happen fast: The open-enrollment period for 2017 insurance is underway now, and plans will start Jan. 1.

The two sides agree on providing subsidies but still need to work out the exact mechanism. Republicans on Friday conceded that all the substantive insurance market reforms they wanted won’t be settled in a December special session.

Daudt said that even before the forecast, he was so anxious to get the special session deal that he got heated over the matter in a conversation with Dayton on Friday morning. The speaker said he later apologized to the governor.

“I want to get last year’s business wrapped up … so we can start with a clean slate,” Daudt said.

Although Dayton and the legislative leaders were optimistic that they could work out the final details and bring a special session to fruition, they admitted they’ve been close before, only for things to fall apart.

“Wednesday is the deadline for that — so we know where we stand, we know what we agree on, we know what we still don’t agree on,” Dayton said. “The details are determinative and not always favorable. But we will see what happens this time.”

This article originally appeared in the St. Paul Pioneer Press. To view the original article, please click here

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