While the Capitol rotunda was being decorated for the holidays, Jim Schowalter, who heads the state’s Office of Management and Budget was busy today unveiling a huge gift for Minnesota.
“I’m not sure what to say,” Schowalter said as he stepped before reporters.
He decided to quote his 8-year-old daughter.
“Surprise!” he said with a smile.
Indeed, this newest economic forecast — which showed the state running $876 million ahead of projections — was a stunner.
Pols and pundits had been predicting for days that the forecast would show a brand-new deficit that might reach $1 billion.
According to Gov. Mark Dayton, the state hasn’t had this sort of a “surplus” since 2007.
“After years of bad budget news, it feels like we’d always have bad news,” said Schowalter.
The news isn’t so good that all state budget problems will be magically solved. Actually, although Minnesota’s economy is outperforming the nation, it remains more sluggish than in good times.
By law, extra money will replenish reserves
And under law, this money is already spent.
By law, this money will be used to fill up drained cash-reserve accounts before it can be used for any other purpose. That means that unless state legislators change the law, they still can’t even begin to pay back the $2.9 billion in school shifts that have been used to balance the last two budgets.
But what the money does mean is that at least some of the rancor that has made Minnesota politics so finger-pointing ugly in the last few years should dissipate in the upcoming legislative session.
Of course, that’s not going to happen overnight.
Even in the midst of holiday decorations and unexpected good news, the governor and Republican legislative leaders couldn’t refrain from taking shots at each other.
The Republicans, who control the Legislature, were up first.
They tried to be humble.
“We’re not going to pat ourselves on the back,” said House Speaker Kurt Zellers.
But then he and Senate Majority Leader Amy Koch did just that, saying that it was Republican cuts to state spending that led to the better-than-expected forecast.
Koch announced that this forecast means that any effort by Dayton to raise taxes “is dead.”
GOP leaders note less spending
Republicans are in position to take some credit for a portion of this forecast. Some of the surplus was because of less spending than anticipated.
But Republicans also vigorously fought federal health care funding. A combo package of Department of Human Services reforms and new federal programs made for a decrease in anticipated health care spending even as more people were receiving care.
Republicans were a little overzealous in singing the praises of “private-sector job providers” for the news.
Again, although workers in Minnesota are doing better than workers in the rest of the country, it appears to be that businesses, the job providers, are doing better than workers.
Corporate income taxes ran $139 million higher than anticipated.
Meantime, individual income taxes ran just $36 million ahead of expectations, and sales taxes were $105 million below expected figures.
Dayton couldn’t resist taking shots at Republicans in responding to what he described as “terrific news for Minnesota.”
Then came the shot.
Governor decries property tax rise
“This improvement in Minnesota’s fiscal outlook has come at an unnecessarily high price,” Dayton said. “Republican legislators’ devotion to protecting millionaires from paying their fair share of taxes comes at the expense of everyone else. Home owners and business owners throughout the state are facing crushing property tax increases due to the Republicans’ insistence on cutting Local Government Aid and eliminating the Homestead Credit.’’
Both sides, of course, blamed the other guy for the school shifts and sale of tobacco bonds that were used to balance the budget and end last summer’s government shutdown.
Despite these predictable shots, the rosier forecast will make it hard for the pols to have the old, predictable budget battles that have marked other sessions.
At this point, there even appears to be agreement that this money should be stashed into the reserve fund, which, in Showalter’s terms, would help give the state some fiscal “stability.”
And both the governor and legislative leaders were saying that it’s hard to make any big suppositions until the next forecast, which comes in February.
That doesn’t mean there won’t be plenty for partisans to fight about because constitutional amendments, redistricting, regulations and a bonding bill all will be on the table.
But a tax increase will not be, Dayton indicated.
He again noted that his income tax increase proposal would have affected only the wealthiest 2 percent of the state’s wage earners while “their property tax increases’’ have affected 99 percent. Dayton said, though, that his tax fights are going to be set aside.
“I’m not going to get involved in that dispute,’’ the governor said. “Let them take their position to the polls [in November].”
And despite the colorful poinsettias and the $876 million on the table, there are concerns.
For starters, the “out-budget” for the following bienniumstill shows a $1.3 billion deficit not including money owed to schools.
State economist says risks remain
The state’s economist, Tom Stinson, as is his custom, was quick to find dark clouds in this silver lining.
“There’s still plenty of risk out there,” he said, pointing to the various crises in Europe.
And the U.S. economy remains slow-moving, too — and at some peril.
Among other things, Stinson said it is vital that Congress extend the payroll tax reduction. The additional money that shows up in the paychecks of workers from that reduction is crucial to keeping the economy from almost coming to a standstill.
“Rational individuals would extend the payroll tax reductions,” Stinson said.
That was a sobering thought on an otherwise good day for Minnesota.
Doug Grow writes about public affairs, state politics and other topics. He can be reached at dgrow [at] minnpost [dot] com.