The anatomy of a $1 billion budget surplus

MinnPost photo by Briana Bierschbach
Gov. Dayton: "Without a good transportation system, a lot of companies —especially ones in Greater Minnesota [that] have longer distances to travel their goods and products — are going to be feeling that squeeze."

How big is a $1 billion budget surplus? Well, like almost everything in politics, that depends on whom you ask.

Looked at one way, the projected 2016-2017 surplus announced by budget officials on Thursday is the best news lawmakers have had in years. It’s the first November budget forecast projecting a surplus in the state in eight years. Just four years ago, lawmakers were facing a $6 billion budget deficit. In that context, $1 billion extra on the bottom line appears to be a windfall for lawmakers like DFL Gov. Mark Dayton, DFL Senate Majority Leader Tom Bakk and Republican House Speaker-elect Kurt Daudt, who together will have to agree on a two-year budget plan next session.

Projected budget surpluses and deficits
Surpluses and deficits for each biennium, as reported in the November budget forecast from the prior year. So, for example, the 2014-15 deficit is taken from the November 2012 forecast.

Looked at another way, $1 billion is just a fraction of the state’s more than $40 billion two-year budget. On education alone, the state is projected to spend about $17 billion in 2016-2017, and another $13 billion on health and human services. And, as Minnesota Management and Budget Commissioner Jim Schowalter notes, there will be about $900 million in added inflationary costs on state services that aren’t included in the budget.

Then there are those long lists of things lawmakers and stakeholders say need more money:

  • Dayton ticked off a number of priorities he’d like to see get more funding over the next two years: early-education scholarships, expanded broadband access across the state and child-care tax credits, which alone will cost about $175 million for the biennium.
  • Republicans have left the door open to possible tax cuts next session, which would also come with a price tag.
  • Bakk said the judicial branch is lagging in funding, and also added potential costs related to reform of the state’s sex-offender program and conforming state and federal tax code, which he’d like to get done early in the session.
  • Soon-to-be House Minority Leader Paul Thissen mentioned college affordability, and his caucus has already signaled that extending college tuition freezes is a priority.

All of that considered, $1 billion disappears quickly.

'A pretty small cushion'

“Everybody who has ideas to spend what seems like an incredible amount of money should temper their expectations a little bit,” Bakk said Thursday. “In the context of a $40 billion budget, $1 billion is a pretty small cushion.”

Forecast expenditures for 2016–17 biennium
Compared to expenditures in the state budget, $1 billion can seem like a small sum.

The governor and legislative leaders of both parties agree that additional transportation funding should be a priority next session; Dayton said Capitol watchers can expect some kind of additional revenue in his budget for roads, bridges and other means of getting around. Some transportation-funding advocates put the price tag as high as $6 billion over the next 10 years just to maintain the state’s current transportation system. Dayton has already floated the idea of increasing sales taxes on gas at the wholesale level.

“Without a good transportation system, a lot of companies —especially ones in Greater Minnesota [that] have longer distances to travel their goods and products — are going to be feeling that squeeze,” Dayton said. “Those are the roles government can plan in really contributing to economic growth.”

Roads and bridges a GOP priority

Daudt said roads and bridges will be a priority for his new Republican majority caucus in the House, and he’s willing to keep some kind of revenue to fund improvements on the table, but he added that a gas-tax increase is “not likely.”

“We are spending more money on transportation right now than we ever have in the past,” Daudt said. “While I don’t think a gas tax is the answer and I don’t think it’s likely, I’ve said all along that every option is on the table.”

House Speaker-elect Kurt Daudt
MinnPost photo by Briana Bierschbach
House Speaker-elect Kurt Daudt: "While I don’t think a gas tax is the answer and I don’t think it’s likely, I’ve said all along that every option is on the table."

Dayton plans to release his 2016-2017 budget on Jan. 27, but legislators will wait to craft their initial budget plans until after the February forecast.

One thing all sides seem to agree on when it comes to the $1 billion surplus: It will make their jobs a little easier — not more difficult — when session kicks off on Jan. 6.

'Greatly improved territory'

“Considering that four years ago we were looking at a $6 billion deficit and two years later a $625 million deficit, this looks a lot better than that,” Dayton said. “This is greatly improved territory, but there’s always going to be challenges. There will be plenty of ideas for use of this money.”

Dayton added that a healthy surplus will also help avoid the 21-day government shutdown that happened four years ago, the last time the state had divided government. Dayton and the Republican-controlled Legislature didn’t strike a budget deal before time ran out on the session.

Senate Majority Leader Tom Bakk
MinnPost photo by Briana Bierschbach
Senate Majority Leader Tom Bakk: "In the context of a $40 billion budget, $1 billion is a pretty small cushion."

“It should make it more possible that we come out of session on time and without a showdown,” he said.

Daudt agrees: “I think this does make our job easier. We’ve just come through a long period of deficits.” 

Comments (14)

  1. Submitted by rolf westgard on 12/05/2014 - 09:30 am.

    A few thoughts

    Put some in a rainy day fund; boost pre school for all, and still pass an additional gas tax and upgrade infrastructure.

    • Submitted by Pavel Yankovic on 12/05/2014 - 11:38 am.

      A gas tax…

      in a year of a budget surplus. Talk about having our noses rubbed in it.

    • Submitted by Tom Anderson on 12/05/2014 - 11:01 pm.

      By law

      I believe that about a third of it must go to the “rainy day fund”. Which, if anyone has noticed, never goes to pay for a rainy day, we ask the Feds to pay for floods.

  2. Submitted by Wayne Coppock on 12/05/2014 - 09:53 am.

    Roads and bridges

    If Daudt is actually a fiscal conservative, I hope he means “repairing existing roads and bridges” and not “building lots of new roads and bridges then not bothering to worry about where the maintenance funding comes from,” which has been the case for far too long. The state already has far too many lane-miles of road compared to the population and it should not add to that unless there is an accompanying funding plan for long-term maintenance costs. Gas taxes are a diminishing pool of funding that covers less and less of road expenses every year as cars get more efficient and people drive less. They either need to be upped significantly or an alternate funding mechanism must be found that does not simply siphon funds from the general fund (there are several proposed solutions to this floating around, but none are perfect).

    Speaking of people driving less, they had better not try to score points with the rural base that elected them by cutting transit funding to the cities (where most of the actual tax money comes from, mind you). T-Paw’s spite politics did nothing good for the state and we’re only now recovering from some of the asinine decisions he made.

    • Submitted by Ray Schoch on 12/05/2014 - 10:43 am.

      Good points

      When I was a planning commissioner in Colorado, city engineers taught me that about 60% of the cost of a road was maintenance, with a “useful lifetime” in most cases of about a generation (i.e., 25 years or so). It’s a cost factor which almost never is included in news stories about roads and bridges. We could easily spend everything in the transportation budget just to get all the roads up to level-of-service “C,” and then there’s the matter of thousands of bridges, a surprising number of which were built in more expansive and prosperous times (the 1960s and 70s). There’s a lot of pavement and bridge concrete that’s due for replacement in the next decade, if it’s not due already, and maintenance never gets media coverage of the sort that something “new” always gets. If the state doesn’t currently have a long-term maintenance funding plan, now would be an excellent time to devise one.

      Agreed about transit funding, but Dayton’s point about out-state maintenance is also a good one. There’s always a balancing act, and in fiscal terms government generally consists of “hard choices,” where two competing fiscal demands are equally deserving.

  3. Submitted by Pavel Yankovic on 12/05/2014 - 09:54 am.

    How many….

    of the readers of this site have a 2 1/2% cushion in their family budgets?

    • Submitted by Ray Schoch on 12/05/2014 - 10:35 am.

      It depends

      …upon which income quartile or quintile you’re trying to get an answer from. The bottom 20%? Almost none. The top 20%? A sizable majority would be my guess.

    • Submitted by Jonathan Ecklund on 12/05/2014 - 10:46 am.

      I think the more pertinent question would be “how many readers here think that budgeting for a 4-member household is roughly analogous to a multibillion-dollar government that serves 5 million people?”

      • Submitted by Tom Anderson on 12/05/2014 - 11:10 pm.

        The more pertinent question is

        How many more budgets can we increase spending by over 8% per biennium? Certainly most readers here have increased their spending by at least that much (not including borrowing).

    • Submitted by Wayne Coppock on 12/05/2014 - 01:31 pm.

      The fiscally responsible ones? Excluding, as Ray said, the very poorest who have almost no wiggle room in their budgets (I’ve been there!). The cost of living is constantly increasing and wages haven’t been keeping up for decades.

      Anyone who makes a middle-class or better living and lives a lifestyle where they utilize 100% of their take-home income is being irresponsible. Maybe it’s because I went from abject poverty to a pretty decent living within about 4 years, but I can’t imagine spending everything I make like that. I’m overly cheap about things I have no reason to be anymore, perhaps because habits are hard to break, but it serves me well. Even when I made just over the poverty line I still had some cushion in my budget every month.

      Probably my biggest saving is not owning a car, which generally costs people thousands of dollars a year (if not in the teens of thousands). I pay more in rent than a lot of people do for their mortgage, but considering I pay next to nothing for transportation I still come out ahead. Sure, it takes me longer to go to the store and buy things, but I actually have money to buy things when I get there.

  4. Submitted by Logan Foreman on 12/05/2014 - 12:41 pm.

    Reading Daudt’s comments above

    Just again points out that republicans say they want x,y and z (now especially for outstate MN) but they never say how they will fund x,y and z. That is especially true on transportation issues. How will Daubt pay for bridges and roads, if not by a gas tax, which is a user fee? Why and specifically where are new roads or bridges necessary in outstate? I also think the press does a lousy job in demanding answers.

    • Submitted by Wayne Coppock on 12/05/2014 - 01:38 pm.

      Odds are he will probably take it from the cities via cuts in funding to things that benefit them the most. He will very literally rob Peter to pay Paul (but not St Paul!). User fees are only for things they don’t like, like public transit (which, by the way, has one of the highest farebox recovery ratios in the country here due to the lackluster funding situation and strong ridership numbers).

      I also find it’s common that people who are all about running government like a business never actually think about the ROI on infrastructure investments. Building roads outstate gives you a much smaller return (probably negative when you actually consider the upkeep costs) with the economic growth provided vs. investments in the city. But let’s not let logic or sound financial underpinnings anywhere near our ideological partisan wasteland of politics.

  5. Submitted by Jared Schei on 12/05/2014 - 05:27 pm.

    So no funding for long-term care?

    I find it curious that with a surplus of $1.2 billion last year, and another $1 billion surplus, the Governor can’t find a nickel to fund nursing homes and other senior programs, and the legislature could only muster up $10 million this year.

    Nursing home rates are set by the state and haven’t been properly adjusted for more than a decade, yet Governor Dayton hasn’t proposed a single funding increase for nursing homes.

    Almost half of the current surplus is due to less spending on Medicaid than was anticipated. How about taking some of that money and using it to cover the actual cost of caring for someone on MA in a nursing home?

  6. Submitted by John Appelen on 12/05/2014 - 09:56 pm.

    Cushions on Cushions

    Since the State maintains a cushion / rainy day fund, talking about the $1,000,000,000 as a small cushion seems irresponsible. There is already a large ‘cushion” that we tax payers funded last year, when the politicians chose to keep that surplus rather than giving it back to the tax payers.

    The reality is that the surplus will be bigger or smaller, estimates are rarely perfect.

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