On Tuesday, the Minnesota Department of Management and Budget will issue its fiscal estimate, revealing how much money legislators have available with which to create the next biennial budget.
A record $9.25 billion surplus and roughly $1 billion in unused federal COVID-19 relief funds were available to legislators at the start of 2022. A proposal to deploy $8 billion of the surplus on tax cuts, infrastructure, and increased government services fell down at the close of the previous parliamentary session in May, although they did agree on some pandemic-related expenditures.
Despite the fact that the national and state economies have slowed down since the previous comprehensive prediction in February, tax receipts have remained above projections. Revenue from individual and business income taxes, as well as from sales taxes, have all been quite healthy for the state.
This implies that when the new legislature convenes on January 3 in St. Paul, governed by the Democratic-Farmer-Labor Party, they will likely have a sizable budget surplus to deal with.
Officials will provide an update on the state of Minnesota’s tax revenues and expenditures, as well as provide information on the current and future health of the Minnesota economy.
Already concerned about an economic downturn, Governor Walz has said that he would prefer to use fresh funds for one-time expenditures rather than raising the cost of services for the general public. If a recession were to occur, the state’s finances would be less likely to suffer.
The strain that inflation puts on government budgets is another issue that will become more pressing this year. Unlike the majority of other states, Minnesota does not account for inflation when planning its budget.
Just with the increased expenditure legislators have already proposed from 2021, the current $51.7 billion two-year budget that ends in June is anticipated to climb to $54 billion. No one can predict how much the government will spend in the future, but rising prices due to inflation are practically certain to increase that sum.
Creating the next state budget will be the primary focus of the next 2023 legislative session. Legislative leaders and the governor’s reactions to the budget outlook will provide an early view of their objectives.
In November, Democrats gained a “trifecta” of state government offices, although their majority in the state House and Senate remain small. Democratic leaders have pledged to pursue a centrist policy agenda.
They ran on a platform of lowering taxes for middle-class households, improving funding for schools, and lowering health care expenses. They’ve also promised to use a mix of crime prevention initiatives and more funding for public safety to address worries about crime rates.
The number of money legislators allocate to these and other initiatives will depend on the size of the budget surplus and the state’s economic prospects.