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How will Minnesota spend its surplus? Here's where some stars seem to be aligning

Gov. Mark Dayton
MinnPost photo by Briana Bierschbach
Gov. Mark Dayton said he still wants to see a large portion of the surplus spent on early education, while Republicans in control of the state House still want to give most of the surplus back in the form of tax cuts.

It was almost like the legislative session never ended.

On Thursday, in a marathon, two-hour briefing on Minnesota’s November budget forecast, state officials announced the surplus had ballooned to nearly $1.9 billion. In response, lawmakers picked up right where they left off in June, arguing over whether it's best to spend extra cash on transportation, tax cuts or schools. 

They didn’t reach a resolution back then, leaving $865 million on the bottom line to deal with during the 2016 session. But higher-than-projected tax collections and lower-than-expected costs to run government programs increased that total number by about $1 billion. By law, about $665 million will be automatically directed to the state’s budget reserve and other repayments, leaving legislators $1.2 billion on the bottom line next session. Legislators work off of an updated budget forecast number released in February, and the session does not convene until early March.

Gov. Mark Dayton said he still wants to see a large portion of the surplus spent on early education, while Republicans in control of the state House still want to give most of the surplus back in the form of tax cuts. In the upper chamber of the Legislature, Senate Democrats in the majority say they’d still like to see a gas-tax increase to pay for road and bridge projects.

But there are a few places where the governor and top legislative leaders show signs of movement in the same direction. Here are the top ways they want to spend a more than $1 billion budget surplus next year:

Transportation: One of the most striking proclamations made Thursday came from Dayton, who said, “I think a gas-tax increase is dead.” It was surprising coming from the lips of the governor, who was one of the earliest and biggest proponents of increasing taxes on gasoline at the wholesale level to raise billions of dollars for roads, bridges and transit over the next decade. But House Republicans rejected the gas tax last session, instead proposing to spend some of the surplus on transportation and divert taxes from auto parts, car rentals and motor vehicle leases from the general fund to an account dedicated to roads and bridges.

Democrats seem to be warming up to that idea. DFL Senate Taxes Chairman Rod Skoe, while noting he still prefered a gas-tax increase, opened the door using one-time general fund money on transportation next year. Dayton also said there should be “additional revenues” put in transportation, but he added that could be accomplished by mixing bonding dollars and general fund revenue.

“[Republicans] rejected my proposal,” Dayton said. “So let’s see their alternatives.”

Tax cuts: The stars are also aligning for a robust tax cut bill next session. "I sense a general optimism that there is going to be a tax bill this year,” Skoe said. “I concur with that."

Dayton said he’s open to a middle class tax cut package using money from the surplus, as long as it’s not too large and won't “jeopardize our future fiscal stability.” He reiterated his call to expand child and dependent care income tax credits to more families. House Republicans were receptive to that idea last year, including it in their $2 billion tax cut package.

Speaker Kurt Daudt
MinnPost photo by Briana Bierschbach
Speaker Kurt Daudt

There also appears to be broad agreement that the state’s business property tax levy is too high. DFL senators proposed reducing the levy last session, while House Republicans proposed phasing it out completely over six years, for a total cost of about $555 million. Skoe said he’d prefer to look at one-time tax breaks rather than large, ongoing cuts.

Both business groups and legislators also said they want to pass some economic development tax credits for research and development.

It’s not surprising that there’s more appetite for tax cuts from all sides in an election year, but there’s likely to be clashes on certain areas of tax policy. Republicans also proposed cutting estate taxes last year, which Democrats criticized as tax cuts for the rich. They also want to create a new state version of the personal or dependent income tax exemption, which would be more costly in years down the road.

Education: Dayton is renewing his call for more money in early childhood education programs, a fight that sent legislators into a special session earlier this year. He didn’t put a dollar figure or include many details about his proposal, but he said he won’t settle for a tax bill without education money.

“I’m not going to put a number on education; that just sets a mark on others to attack and oppose it,” Dayton said. “Let’s see what the February forecast says. But those who think I’m going to sign a tax bill that has an inordinate amount of tax cuts and nothing for early childhood and higher education, I’ll just say right now, I won’t sign it.”

But Republicans say 2016 isn’t a traditional budget year, and they already passed a large increase in education funding in 2015. What’s more, Daudt said stakeholders and legislators from both parties rejected Dayton’s proposal for universal preschool education. But he didn’t close the door on spending more money on targeted early education scholarships. “I won the argument at the end of last session,” Daudt said. “I’m going to keep directing the governor back to what will actually solve the problem.” 

Broadband: On Thursday, Dayton attached a specific dollar figure to only one item: He wants $100 million spent next year to improve broadband access in rural Minnesota. Lawmakers allocated $10 million for broadband funding earlier this year, short of Dayton’s $30 million ask. His new request aligns with the amount rural Minnesota officials have asked for in the past.

He has the backing of House and Senate Democrats, but Senate and House Republicans won’t commit to supporting the proposal.

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Comments (24)

Republicans and their promises

"His new request aligns with the amount rural Minnesota officials have asked for in the past."

"He has the backing of House and Senate Democrats, but Senate and House Republicans won’t commit to supporting the proposal."

And here I thought Republicans ran on promising support to rural Minnesota on issues where they've felt neglected in the past.

I just hope all those rural voters will remember episodes like this when the next election rolls around . . . . . .

Rural voters

Do you really think rural voters vote republican because of their desire for government-provided internet service?

They vote republican in an attempt to minimize the damage caused by the democrats in power. That's all any republican voter asks for.

Infrastructure

One of the core functions of Government is Infrastructure, it's in the State Constitution (roads). The invisible free hand of the market can't or won't make it happen, Apparently an invisible hand can't string fiber optic cable.
High speed internet is the "road" that brings goods to market and the market to goods.

Infrastructure

Infrastructure and Education are the two best investments a society can make. Eisenhower's commitment to infrastructure gave us an unparalleled 40 years of prosperity, and better education makes the future brighter for everyone. As a Minnesotan property owner and taxpayer, I don't feel taxes are too high. Some things are worth paying for.

I wouldn't be so sure of that...

Rural electrification made my Mother a life time New Deal Democrat.

Stay the course, Dayton

on early ed to lower the achievement gap, road maintenance, and bolstering state reserves. Go easy on tax cuts for now.

I share

…Pat Berg's hopes that outstate Minnesota voters remember how the GOP they voted for last time abandoned them (and a lot of rosy campaign promises) once the election was over. Mr. Tester may not be among them, but I'm going to guess that there were at least *some* voters in the last election who *did* vote Republican because of the oft-repeated mantra that the state's GOP would direct attention and funding to the needs of the state's rural areas, including broadband internet access. Since the private sector is unlikely to provide that broadband service to greater Minnesota, or if it does, is unlikely to do so at a price that most outstate customers can afford, some sort of government subsidy is likely necessary.

Funny how many who like to call themselves "conservative" – Mr. Tester excepted, of course – are able to put their rhetoric aside when it's their own benefits that are on the table. I look forward to Mr. Daudt and the GOP running in 2016 on a platform of "We lied. Rural Minnesota should just do without the internet."

How to spend it

That's the problem with who we currently have elected. The only thing they are concerned with is how to spend our money and will gladly spend more if we send them more. How about they concern themselves with not over taxing us and ending up with a surplus?

Where's the problem?

"But higher-than-projected tax collections and lower-than-expected costs to run government programs increased that total number"

Last time I checked, higher than projected tax collections (due to a good or improving economy) and lower than expected costs (efficient government) were a good thing. Democrats are agreeing that we should cut taxes in a fiscally responsible manner, and republicans are (hopefully, I haven't done enough googling) coming up with pragmatic responses. I feel positive about MN leadership.

Eliminate tax on SS

MN is one of only 13 states that tax SS which represents a double taxation since our income was taxed before the FICA deduction. Why would a retiree remain in a state that taxes SS? IT Appears MN does not want retirees.

Not double taxation

Money deducted from your paycheck for social security is absolutely not taxed. That is just incorrect.

I agree that social security income shouldn't be taxed though.

Must we spend the surplus?

Why is the word "spend" in the headline? Are tax cuts now called "spending?"

Tax cuts ARE spending.

As are deductions, Federal compliance, Homestead credits, TIFs for businesses, sales tax exemptions for farmers and more. All spending.

so...

We are "spending" money we do not have?

no

And that is why you won't see those.

No we don't have to spend the surplus

Put it in the rainy day fund. Wall Street, hedge funds, banks and the republicans will tank the stock market in due course

Tobacco

Please play off the leveraged tobacco money first. Think long-term vs. short-term!

Always amazed

The rhetoric from the right is always "kitchen table" budgeting, which it seems other than Arnie Carlson they are terrible at, when the lefties finally get a few bucks in our pocket, "rainy day fund" is the last thing on their mind, better solution, lets throw out some party money! Infrastructure, investment, what's that? Pay as you go plans, long term fixes for transportation, sounds like a radical communistic idea to the right. Sorry these folks as noted other than Arnie, have demonstrated to be financially inept, the only tools in their tool box, rob a dedicated fund, make someone else pay, take no responsibility, gimmick accounting, pass the burden for payment on to anyone but themselves, inner city types refer to that mentality as poverty pimping!

Surplus

Putting some of the surplus towards roads/bridge infrastructure is a good idea...but this state needs to figure out how to maintain the infrastructure with a repeatable source of revenue. Fixing the roads when you have a couple extra bucks in your pocket is not sustainable. If they are going to look at tax reductions, I would start with those on Social Security and our retired vet's.

Decide after the February report

And be sure that you all check your truth in taxation statements. If your county, city, or school district are short of money and are raising their levy, it might be an indicator as to why the State has a surplus.
And please hold off on any more early education mandates, the school districts are still trying to figure out how to pay for all day everyday kindergarten.

Truth in Taxation

"If your county, city, or school district are short of money and are raising their levy, it might be an indicator as to why the State has a surplus." I don't understand this statement. The state has a surplus, but it does not come from taxation of counties, cities, or school districts. They are all separate taxing bodies.

Counties, cities, and school districts rely on property taxes, while the state relies on income and sales taxes. Different factors will have a different impact on either revenue source.

Unfunded State mandates

Cost the State nothing, but put the cost in the hands of counties, cities, and schools. Transferring costs from the State to counties also reduces State costs which gives the State a "surplus" but merely transfers those costs to the other taxing entities. Parents can make their balance sheet look as though it has a surplus if they pass the cost of food, education, utilities, etc. on to their children. The children will be short of money, but then, that's their problem.

Part of the reason the State has a surplus is that many of it's costs have been passed downward. Part of the reason is that the State increased taxes by $2 billion dollars about three years ago (some of which were immediately repealed the next year).

On Surplus Wealth

Being wealthy is not how much money you spend, but how much money you have. Please continue to remain fiscally responsible: build our rating; build our wealth.

Most Excellent Steve!

It isn't so much how wealthy "I am" vs. how wealthy "we" as a community are!