Projection of a State Budget Surplus is a Mixed Bag

March 1, 2018

The February State Budget Forecast was released February 28, roughly two months after the December Budget Forecast predicted a $188 million state deficit for the coming biennium. The new forecast however, predicts a $329 million budget surplus. 

This forecast is what legislators use to set their spending targets and priorities for the remainder of the legislative session. Many legislators expected a surplus, but the dollar amount is much smaller than predicted. Like any forecast, it’s a mix of good and bad news:

Good News: Minnesota saw higher tax revenues in the major areas of the state budget than was expected. In addition, state expenditures were lower than previously predicted. This is partially attributed to increased U.S. economic growth spurred by the federal tax law changes.

Bad News: The budget forecast is just a projection. The $517 million swing represents less than one percent of the total state budget, clearly within a margin of error for forecasts. In other words, the actual revenues and expenditures will deviate slightly from any forecast. 

Good News: Minnesota has recently been seeing wage growth and overall employment numbers continued to look great. Unemployment is at its lowest rate in 17 years. Across the state, there continues to be more job vacancies than applicants to fill them.

Bad News: Wage growth and high employment numbers could cause inflation fears, which in turn could impact the budget for the next biennium. Remember, the odd year legislative session is when lawmakers assemble the next biennium’s budget. 

Good News: Minnesota’s budget is thought to be in structural balance. That means it would be able to support financial sustainability and stability into the future. As the state’s budget experts look into the forward towards their future forecasts, the budget looks to be in good shape. 

Bad News: The legislature still hasn’t tackled Federal tax conformity. This conformity helps make filing tax returns in Minnesota less complicated. If lawmakers decide to conform to the new federal standards, a significant portion of the surplus could disappear. 

Good News: Legislators and advocates who want the state to allocate funds for specific issues – think elder care, school safety and fixing the Minnesota Licensing and Registration System – have funds to do so. 

Bad News: There are already requests for more dollars than are available to spend. That number will only continue to grow as groups present lawmakers with additional legislative agendas and lawmakers continue to drop bills. 

About a week into session, lawmakers are ready to roll up their sleeves and get to work on the tough issues they face this session. They’ve also planned their nine-day Easter Passover Break beginning on Good Friday (March 30). After break, committee deadlines will quickly approach and end-of-session negations will begin, all in time for the #MnCRE Morning at the Capitol on Tuesday, May 8