"Minnesota has...well, had a surplus"


Minnesota Management and Budget (MMB) has released the end balance for Fiscal Year (FY) 2013 which ended June 30, 2013. This surplus balance of $636 million was immediately used to repay the K-12 school shift. Details of the surplus, the repayment of the shift, and what it means for the 2014 Session are located below. MMB’s report on FY 2013 can be found on their website at http://www.mmb.state.mn.us/.

Why the Surplus

FY 2013 ended with a $636 million surplus and this balance is carried-forward into FY 2014. This $636 million is one-time money, meaning it does not recur in future years. MMB reported that this surplus was due to “higher than anticipated year-end revenues…and lower spending”. More specifically, income tax was up $364 million, the corporate income tax was up $116 million, and the sales tax was down $43 million. Spending was $53 million less than expected.

Interestingly, other tax revenues and non-tax-revenues were high, going up $52 million. This category is made up of the insurance gross premiums tax, cigarette and tobacco tax, the estate tax, and departmental earnings. The $52 million increase is likely due to transactions taking place in June before tax rates increased at the start of the new fiscal year on July 1. For example, the cigarette and tobacco tax increase went into effect on July 1. Tobacco and cigarette users likely stocked-up on product before the tax increase went into effect, generating additional tax revenue.

Surplus allocated to Shift Buy Back

This $636 million will be spent immediately. A provision passed into law in the last legislative session requires that the entire FY 2013 surplus be used to repay the estimated $874 million remaining balance on what is commonly known as the “K-12 shift”. The “K-12 shift” is actually a phrase used to describe two budget actions: 1) the K-12 payment shift and 2) the property tax recognition shift. Both of these actions effect schools funding. The first budget action, the K-12 payment shift, is paid back in full with $287 million. The balance on the second budget action, the property tax recognition shift, is reduced by $349 million, with only $238 million remaining.

What does this mean for the 2014 Legislative Session

Normally when there is a surplus in the previous fiscal year, it is available to spend in the next legislative session. That is not the case here. The $636 million will be considered spent when the November 2013 Forecast is reported. The Legislature and the Governor will have less money available to them in FY 2014-2015 and could have a more difficult time finding money to address their priorities.


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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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