In the ten months after state authorities last predicted historically high tax receipts, Minnesota’s massive budget surplus has almost quadrupled, reaching over $18 billion.
Minnesota Management and Budget Commissioner Jim Showalter stated at a press conference on Tuesday, “That is an outstanding balance whatever way you look at it.” Showalter was addressing the question of how the state’s coffers had grown to be so full.
After an agreement for tax cuts and extra spending fell through in May, legislators effectively left $8 billion on the table. Over the course of the current two-year budget, tax receipts have grown by $4 billion more than predicted, and another $6 billion in income is likely to go above what legislators have specified for the next biennium.
As Governor Tim Walz put it, “I’m enthusiastic about this.” Now is the moment to reduce family expenses. Put some cash back into their own hands.”
State analysts predict a mild recession in the near future, and most of the excess is one-time money.
Democratic-Farmer-Labor Party officials like Walz, who took over the state government in November, have said that they have no intentions to lower taxes for the rich and instead aim to help “working families and elders” with the state’s windfall.
Kari Dziedzic, DFL-Minneapolis, the next leader of the Senate, promised, “We will be smart and deliberate.” “We’re interested in finding ways to improve our procedures.”
When the news broke, Republicans reacted differently. Rep. Lisa Demuth (R-Cold Spring), the House Minority Leader, has said the excess is “shocking,” “jaw-dropping,” and proof that Minnesotans are “overtaxed.”
Demuth argued that the state should not use “Minnesotans’ money” to justify greater government expenditure.
On Tuesday, lawmakers’ responses to the surplus news were vague, but they did confirm that taxes would be lowered and additional government expenditure would be authorized. On January 3rd, lawmakers will gather in St. Paul to begin work on the state’s biennial budget.
While the state of Minnesota is in a “excellent situation,” Governor Walz has pointed out that the surplus in the state budget doesn’t reveal the full extent of the state’s economic recovery from the epidemic. A large portion of Minnesotans are still unable to afford basic necessities like food, transportation, and housing.
It’s a good image in the big picture,” Walz remarked. There is “a great chance” to make Minnesota a better, fairer, more inclusive, and wealthier state.
Walz reaffirmed his support for giving rebates to Minnesotans, a proposal that was met with indifference by the state’s political parties when Governor Dayton first proposed it earlier this year. Although the original idea called for giving $1,000 to individuals and $2,000 to families, Walz has suggested increasing both amounts.
The Democrat governor also stated his desire for long-term tax relief for middle-class families and retirees. While some prominent Democrats have suggested they are considering a full repeal of state taxes on Social Security, others have acknowledged they are still considering the option.
The state of Minnesota currently provides exemptions from Social Security payments for those with lower incomes, and a complete repeal of the levy might result in a loss of revenue of over $500 million annually.
The Democratic Party has proposed a number of policy initiatives, including tax cuts and new, one-time and recurring expenditures.
House Majority Leader-elect Jamie Long (DFL-Minneapolis): “Minnesotans want a state that works well for everyone.” It’s not unreasonable to expect that everyone should get a fair share of this windfall.
A major goal of the Democratic Party is to increase financing for public schools. They seek to lower health care costs, increase the amount of time people can take off to care for their families, and take other measures to lessen the state of Minnesota’s environmental impact.
The DFL has a razor-thin majority in both chambers of the legislature and has shown a willingness to collaborate with Republicans. Both sides found the most room for collaboration in the realms of affordable child care and housing.
Income, corporate, and sales tax collections in Minnesota have all been stronger than predicted, which has led to a budget surplus.
The bulk of the additional money since the Legislature adjourned in May came from income taxes, while the largest percentage increase came from corporation taxes. The state’s total income, including both tax and non-tax sources, increased by 5.8 percent compared to projections.
When added to the $8 billion accord for tax cuts and extra investment that collapsed in May, the state’s finances are now far stronger than expected. In the future, tax revenue is projected to once again exceed projections by almost $6 billion.
During the current biennium, Minnesota has spent around $1.5 billion less than originally projected. Less money was spent on education because there were fewer pupils, and less was spent on healthcare and social services because of government pandemic assistance.
The budget surplus announcement on Tuesday was good news for Walz and the new legislature, who both won reelection on Tuesday. The good news, however, is qualified.
Lower income tax receipts and more unemployment are forecast for next year, signaling the start of a “mild recession” for the state’s economy. It is expected that the state’s low unemployment rate of 2.1%, which is the lowest in the country, would cushion the blow of any economic slowdown.
Furthermore, the surplus includes $12 billion in one-time funds that will be permanently lost once they are used. That’s why it’s important for politicians to be cautious about enacting too many new programs that the state’s budget can’t support.
Finally, Minnesota is unusual among states in that it does not include inflation into its budget projections. Walz and other politicians have shown an interest in reintroducing it, but doing so would need a change to state law.
Inflation, estimated at 8.1% in 2022, would eat away around $1.5 billion of the state’s budget surplus over the next two years and a projected $3.3 billion during the next biennium.
Showalter, though, said that Minnesota is in a stable financial position despite these difficulties.
“Minnesota is still strong, and our budget forecast is good,” he added.