Minnesota Legislative Update: November Economic Budget Forecast Projects Surplus

Faegre Baker Daniels

Minnesota Management and Budget (MMB) released its November Economic Budget Forecast on December 5, 2019. This forecast shows an improved economic outlook compared to the end of the 2019 legislative session and projects an approximately $1.3 billion surplus for the remainder of FY2020-21 biennium. The surplus can be attributed to a slight increase in projected revenues and a decrease in projected expenditures; in addition to the $1.3 billion surplus, $284 million was automatically allocated to the budget reserve account. With that allocation, the budget reserve account has met its statutorily defined target. This account is a rainy-day fund.

The forecast also projects a slight surplus for FY2022-23. This is an improvement over the February 2019 forecast, which projected a slight deficit in the next biennium.

The stadium reserve account is expected to grow. The state spending related to the US Bank Stadium is generally fixed, so any additional revenues are deposited into the stadium reserve because they exceed the spending. In FY2019, $11 million was added. In FY2021, the state will begin retaining Minneapolis sales tax receipts to cover the payments the state remits on behalf of the city for stadium obligations. The forecast also projects an increase in lawful gambling revenues. Due to these rising allocation amounts, the stadium reserve balance is expected to reach $248 million by FY2023.

MMB’s next budget forecast is due at the end of February of 2020. In the event this forecast projects a deficit the legislature will need to implement cuts and otherwise comply with the state constitution’s requirement for a balanced budget. The recent practice in the second year of the biennium has been to pass a supplemental budget even when there has been a surplus.

The full forecast report can be found here.

Governor Walz and Legislative Leaders Respond

In his press conference discussing the forecast, Governor Tim Walz (DFL) indicated he was open to supplemental spending while urging caution, as much of the surplus is the result of one-time money. Governor Walz made clear he was not open to large tax cuts, specifically referencing the provider tax. Governor Walz’s focus is to continue developing his bonding bill recommendations, which are due to the Minnesota Legislature January 15.

House Majority Leader Ryan Winkler (DFL – Golden Valley) called the forecast good news for the short term. He urged caution regarding the out years as the budget forecast includes a surplus for FY2022-2023, but the vast majority of that is based on the $1.332 billion surplus being carried forward. When looking at revenues and expenditures, the surplus is only $220 million, and this does not include inflation. In response to questions, Winkler also noted that the House remains focused on developing a $3.5 billion bonding bill and that transportation and transit funding was off the table for next session.

House and Senate Republican leaders alike celebrated the surplus. While their approaches differ, both believe it should be used for tax cuts. Senate Majority Leader Paul Gazelka (R – Nisswa) said he would like to take a look at removing all social security taxes. Other ideas he mentioned include tab fee rebates/holiday, safe school funding, and roads and bridges. House Minority Leader Kurt Daudt (R – Crown) said the provider tax should be repealed. In addition, both Gazelka and Daudt agreed there is a need for a bonding bill and stressed the importance of funding projects with a strong regional impact.

Save the Date – Faegre Baker Daniels Hosts Legislative Leaders to Discuss 2020 Session

On Monday, January 27,2020, Faegre Baker Daniels will host Speaker Melissa Hortman, House Minority Leader Kurt Daudt, Senate Majority Leader Paul Gazelka, and Senator Tom Bakk to discuss their priorities for the upcoming legislative session and preview the 2020 elections. Attendees will also hear from Jeff Sigurdson of the Campaign Finance and Public Disclosure Board, who will discuss recent developments at Minnesota’s Campaign Finance and Public Disclosure Board. FaegreBD lawyers will also discuss the do’s and don’ts of political and lobbying activity in the work place. This will be a great opportunity for both government relations and political compliance professionals. Expect an invitation with more information regarding this event. We hope you can join us!

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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