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Minnesota has a $2.4 billion surplus, but a deficit could be looming, state budget officials say

Minnesota has a $2.4 billion surplus, but a deficit could be looming, state budget officials say
Minnesota has a $2.4 billion surplus, but a deficit could be looming, state budget officials say 03:02

ST. PAUL, Minn. — Minnesota is projected to have a budget surplus of $2.4 billion this biennium, state officials said Wednesday. But there are warning signs in future years that could lead to a potential deficit.

The $2.4 billion surplus is $800 million more than end-of-session estimates, but smaller than the eye-popping $17 billion surplus the state legislature had to work with when they began session this past January, before it passed a $72 billion state budget by adjournment in May. 

"Higher expected consumer spending and corporate profit growth raise the FY 2024-25 tax revenue forecast," the office of Minnesota Management and Budget said in a news release. "The near-term U.S. economic outlook has improved since [the last forecast in] February, driven by stronger than expected consumer spending, business investment, and employment."

The future for the state's finances might not be as sunny in next biennium, officials cautioned. By the end of fiscal year 2027, the forecast shows just $82 million on the bottom line.

But there's an anticipated "structural imbalance" where spending exceeds revenues by $2.3 billion. Officials cited increases in costs related to health and human services and education, including the universal school meals plan implemented this year, as contributing factors. 

"Such a small balance together with the structural imbalance suggests policymakers will need to be very thoughtful when making budget decisions this next year," Minnesota Management and Budget Commissioner Erin Campbell told reporters Wednesday. 

Though this upcoming session is not a year when they must craft the next state budget, indeed lawmakers will use this forecast to inform their work when they return to St. Paul in February.

In response to the numbers, Gov. Tim Walz suggested a "limited" supplemental budget and urged legislators to focus on implementing policies passed this spring and approving an additional bonding package for infrastructure projects.

"I would tell them look, you do need to be measured. You need to be careful about where we spend money," Walz said. 

Campbell said the revenue and spending mismatch projection doesn't mean a deficit is a sure bet. Estimates can change, and it can depend on the outcome of this session. The end of this biennium— covering fiscal years 2024 and 2025—is 19 months away. 

"That depends on whether or not our projected spending continues at the same rate, if it's higher or lower. It depends on whether our revenues come in as projected higher or lower. So there are a number of different things that are ultimately driving that factor. But certainly one outcome could be a deficit," she explained.

But Republicans were quick to criticize the DFL-led legislature for the large state spending increases this year and blamed them for risking Minnesota's future financial health as a result.

"No matter the semantics of what we've heard today, no matter how they spin this—this is a deficit," said Senate Minority Leader Mark Johnson, R-East Grand Forks. 

He said Democrats "squandered" the opportunity to be good stewards of state dollars this session.

After news of the surplus was made public Wednesday, requests from stakeholders–-from hospitals to the state's largest teacher's union–-poured in about how to spend that balance.

And some Democrats just last week announced a proposal to provide a big boost to child care investments. But House Speaker Melissa Hortman, DFL-Brooklyn Park, acknowledged unmet needs and said the legislature will not be able to deliver on everything. 

"Do I wish we could do more on childcare? I certainly do. Do we have the revenue to do it? It doesn't look like right now we have the ability to make an additional commitment," Hortman said. "We'll see what the numbers show in February."

She vowed that their top priority this year is a bonding bill, which will need GOP support. 

NOTE: Minnesota accounts for inflation in it's economic forecast. 

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