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National experts warn: Caution is the right approach to state ‘surpluses’

When the November forecast brought news of a projected surplus, we welcomed that good news. But we encouraged policymakers to act cautiously, to keep revenues strong, continue efforts for a fair tax system, and strengthen state budget reserves to make sure Minnesota stays on a solid track.

In a recent blog, Michael Leachman of the Center on Budget and Policy Priorities similarly notes that Caution is the Right Approach to State “Surpluses.” He reminds us that states frequently have surpluses when coming out of a recession, and makes the point that:

  • A surplus means the state has more money than it expected, not necessarily more money than it needs.
  • Recovery from the Great Recession remains fragile.
  • Tax cuts are a lousy way to grow a state’s economy.

It’s great that Minnesota’s economy is growing, and that stronger economic growth is reflected in a projected surplus. But it’s an initial step as Minnesota gets back on its feet.

We’ve already taken some steps to put Minnesota in a stronger, more stable financial situation, such as using recent surpluses to reverse past budget gimmicks. But we can do more.

We should build up our reserves so we’re better prepared for the inevitable ‘rainy days’ to come.

We should use some of the surplus to strengthen our economy and make the state a better place to live. The fact that there are more than 7,000 Minnesota families on waiting lists for child care assistance, for example, is a clear indication that there’s more to do to support our workforce as we come out of the recession.

And we shouldn’t pass large tax cuts that risk the state’s ability to fund our priorities. I’ve been doing tax and budget work since the mid-1990s, so I’ve seen what happens when we get too anxious as a state to start cutting taxes. It makes the next economic downturn harder. It makes the state consider cuts to services that help meet people’s most basic needs, such as Meals on Wheels.

We don’t need to stand still on tax policy this year, but we should concentrate on making our system fairer and work better. Updating the Working Family Credit to match federal improvements fits both those criteria. Doing so would address marriage penalties faced by some working Minnesotans and make the tax system simpler. And it does so at a very modest cost.

The positive budget situation creates the opportunity in the 2014 Legislative Session to build on last year’s progress. But policymakers should be cautious, and make budget decisions that will make us stronger down the road.

This post was written by Nan Madden and originally published on Minnesota Budget Bites.

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Comments (1)

  1. Submitted by Karen Sandness on 01/30/2014 - 12:14 pm.

    Oregon requires that a surplus over a certain amount

    be refunded to the taxpayers.

    This is called the Kicker, and right-wingers treat it as a sacred obligation of the state and scream bloody murder if anyone proposes replacing it with a Rainy Day Fund.

    Most of the 19 years I lived in Oregon, I earned about the median income, and in the years when there was a Kicker, I received about $80. My being at the median income level meant that about half the people received less and half received more. In other words, it benefited the affluent much more than it benefited the poor.

    Oregon has experienced several boom and bust scenarios, so the Kicker years are often followed by lean years in which the state takes in less than it budgeted. The only adjustment that right-wingers will allow is cuts to public services.

    My experience in Oregon makes me an advocate of establishing a Rainy Day Fund here in Minnesota. Religious conservatives–who might otherwise toe the Republican line– should recall that the book of Genesis has Joseph advising the Pharaoh to store grain from the seven bumper crop years to prepare for the following seven years of famine.

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