Even Tom Stinson expressed surprise.
Minnesota’s state economist started seeing the numbers come together last week. In the end, those numbers showed that the state would collect $1.160 billion more than previously expected.
“I was surprised by the billion, but not that it was a lot of money,’’ Stinson said.
So did Stinson dance on a table, pop champagne and burst out in song over the newest forecast?
“We were all so tired,” said Stinson of the team that puts together the forecasts. “We said, ‘Gee, that’s nice,’ and then we went to sleep.”
Nice as the new forecast was, it only cut — it didn’t solve — the state’s budget deficit.
Following the announcement of the new revenue projects, Gov. Mark Dayton and Republican legislative leaders still had $5 billion to fight about.
Dayton revises his budget plan
Dayton, who is attending a governor’s conference in Washington, greeted the new forecast with a promise to “revise” his first budget proposal.
The big change is his decision to drop the proposed surcharge for Minnesota’s highest wage-earners. That move, Dayton said, would keep Minnesota from having the highest income rate in the nation, a status that appalled Republicans in the Legislature.
But Dayton still seems intent on creating a fourth income tax tier on the wealthiest.
The new numbers, Dayton said, means that he can restore $200 million in cuts previously made to the Department of Human Services. The most controversial of those cuts — even among Republicans — was Dayton’s plan to make cuts in state payments to nursing home and in-home care.
Republicans were only mildly impressed with Dayton’s dumping of the surcharge, which would have added a 3 percent tax charge on incomes of more than $500,000.
“Very pleased with the rollback,” said Senate Majority Leader Amy Koch, a hint of sarcasm in her voice. “Now we’d have only the second-highest tax rate in the country. But at least we’re going in the right direction.”
Republicans insist that the improvement in the forecast is all the result of to the private sector.
“Thank you to the employers and employees of Minnesota,” said House Speaker Kurt Zellers. “You allowed us to be in a lot better shapes.”
Different views on assessing changes
But that’s only one way of looking at the improved numbers.
According to Stinson, it was a federal government decision — the compromise between congressional Republicans and President Obama to extend the tax cuts across the board — that is largely responsible for the rosier picture. That compromise included the decision to extend unemployment benefits, which create more revenue in Minnesota.
Additionally, revenue from capital gains was higher than forecast in November, thanks to the improving stock market.
There’s no doubt among the vast majority of economists, Stinson said, that the controversial Obama stimulus plans have worked to bolster the economy.
What still lags is employment, Stinson said.
Corporate profits, he said, have risen “to very high levels,” and everything should be in place for hiring.
“But who will ring the bell to start hiring?” he asked.
Zellers said that if Minnesota government can “create stability for job creators,” that will ring the bell and put Minnesotans back to work.
He said that if the federal tax decrease created some economic improvement, perhaps the Minnesota Legislature also ought to look at tax cuts.
At the least, Republican leaders said Minnesota still must live within its means. What changes is that the budget number no longer is $32 billion for the next biennium. Now, they are talking in terms of living with a $33 billion budget.
The Republicans “live within means’’ talk set up a predictable response from DFL legislative leadership. With the new forecast numbers on hand, the leadership said Republicans must stop taking potshots at Dayton’s budget proposals and come forward with their own “cuts-only’’ approach to dealing with what is now a $5 billion problem.
“No more excuses,’’ said House Minority Leader Paul Thissen. “It’s time for them to put their property-tax raising, all-cuts budget on the table.”
That will happen on March 25, Republicans say.
So the principles surrounding the debate haven’t really changed.
What caused the numbers to change, and how fragile is that change?
The big $500 million bump came in predicted income tax collections. Sales tax collections are now projected to be $285 million higher than previous forecasts. Corporate taxes are projected at $41 million more.
“There is more upside than downside,’’ said Stinson of the forecast.
Mideast turmoil looms over state finances
But there potentially is a big cloud looming on the Mideast horizon.
The just completed forecast was based on an assumption of oil prices of less than $100 a barrel.
“Clearly,” Stinson said, “that is a little optimistic.”
For every $10 a barrel increase in the cost of oil, Stinson said that gas prices rise 25 cents a gallon. For each penny gasoline increases, discretionary spending in the country is reduced by a stunning $1 billion.
The mild optimism of the day could be deeply affected by events far from Minnesota borders.
Or, as Jim Showalter, the director of Minnesota Management and Budget put it, “volatility happens.”
Also volatile are the positions of the state’s political leaders, because there’s still $5 billion of budget negotiations for them to battle over.
Doug Grow writes about public affairs, state politics and other topics. He can be reached at dgrow [at] minnpost [dot] com.