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Minnesota's Budget Forecast Takes A Major Turn

ST. PAUL, Minn. (WCCO) -- Minnesota is expected to see a $1.6 billion surplus in the next two-year budget, a drastic change from a previously predicted shortfall, state experts announced Friday. The announcement means brighter picture for the state's finances as lawmakers battle over the spending details.

"I feel like we've been on a year-long roller coaster," said Jim Schowalter, commissioner of Minnesota Management and Budget, the chief financial officer for the state. "The sun is beginning to shine and we are showing improvements in the state economy and state budget situation."

The economic forecast detailed Friday represents nearly a $3 billion swing from the December estimate, which predicted a $1.3 billion deficit for the next biennium in fiscal years 2022 and 2023.

Schowalter said the improvement is directly related to federal pandemic relief not accounted for in the December forecast. Since then, Congress has approved a $900 billion plan in December and a $1.9 trillion plan—nearly double the previous stimulus—is looming in Washington. Accounting for federal aid raises revenue projections and lowers state spending, Schowalter said.

Experts were clear that there are still unknowns, like how much new stimulus packages will bring to the state and how quickly Minnesotans will be vaccinated on the road to recovery.

"While our economic consultants see a stronger growth pattern ahead, we know a lot of this is based upon anticipated federal pandemic response. That money is not in the bank," Schowalter said, adding that the rosier economic outlook still falls short of what they had originally predicted for the next biennium before the pandemic began.

Still, Republicans and Democrats welcome the better news for the state's bottom line. Gov. Tim Walz on Friday said the forecast shows the state's financial fundamentals are strong, and that there is "every reason to be optimistic."

This comes just one day after the governor detailed a timeline for all Minnesota adults to have access to the vaccine by summer, which is the key to full recovery.

"It goes to show that the false choices during COVID-19 that were put in play—that you had to choose people's lives over the economy and vice versa— are simply not true," Walz said.

But businesses and families are still hurting. Budget forecasters say unemployment has disproportionately impacted low wage earners, and the hospitality industry has borne the brunt of job losses.

Republicans and Democrats both say the need is there for more support, but they are clashing over how to meet the need. For the GOP, though, proposed tax hikes by Gov. Tim Walz are a nonstarter, especially with the new numbers.

"I hope that we see from today is that this push by Governor Walz and the Democrats for a billion dollars in tax hike ends," said Rep. Anne Neu Brindley, R-North Branch. "We clearly have the resources."

Before the new forecast, Governor Tim Walz in January revealed his budget plan that included $1.6 billion dollars in tax hikes on the wealthiest Minnesotans and capital gains. He said while the situation has improved, he did not commit to giving up on that proposal.

"My commitment to a fair, progressive taxation system is still there, but I am more than willing to have us find a compromise that works," Walz said.

House DFL leaders welcome the news, but they argue the budget prediction doesn't provide enough to meet the state's funding obligations and help Minnesotans weather the pandemic.

This will debate over taxes further fuel a battle at the state capitol over the details of a two-year spending plan.

"Today's forecast is good news, but it's important to recognize that our budget doesn't currently meet the needs of all Minnesotans," said House Speaker Melissa Hortman, DFL-Brooklyn Park. "We must pull together and make the investments all Minnesotans need to recover from the pandemic and thrive once it's over."

The legislature has to pass a budget before the beginning of the new fiscal year on July 1 to avert a government shutdown.

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