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Why trying to spend Minnesota’s budget surplus is proving irresistible to legislators

Gov. Tim Walz
MinnPost photo by Peter Callaghan
Gov. Tim Walz: “Set your expectations pretty low on a supplemental budget because from a fiscally responsible level, I think that needs to be a relatively low one.”
After rolling out his capital project budget request last month, Gov. Tim Walz sent a message to lawmakers about the other budget the Legislature will deal with in 2020, the supplemental budget that offers a chance to tweak the state’s big, two-year budget adopted last May:

“I’ve been clear to our state agencies who have needs,” the DFL governor said. “Set your expectations pretty low on a supplemental budget because from a fiscally responsible level, I think that needs to be a relatively low one.”

So far, it doesn’t appear many lawmakers are listening. DFLers in the Legislature have proposed $800 million or more in new spending while GOP members have introduced a billion dollar tax cut plan.

So how big — or small — might a supplemental spending plan be?

Since nobody in either chamber or party is going to propose a tax increase in an election year, the range of any supplements to the state’s current $48.5 billion budget is defined by the $1.33 billion surplus. But even that number is constrained by Walz’s stated desire to pay back a loan of sorts that was used to reach the 2019 budget deal. To make the numbers work, the state committed $491 million from the state’s rainy day fund to assure that the two-year budget stays in balance.

What’s more, Walz’s proposed capital spending plan of $2.6 billion will require an additional $180 million in principal and interest payments. That wouldn’t reduce the $1.33 billion surplus this year, but any new spending that has an ongoing impact certainly would. For instance, a complete elimination of the state income tax on social security benefits — which Senate Republicans proposed Thursday — would cost $435 million next year but have a $960 million impact on the next biennium.

That’s why most of the discussion at the Legislature has been about using the surplus to make one-time expenditures — or at least to make to make any ongoing expenditures sound like they’re one-time expenditures.

Putting $30 million into the state disaster relief account, as Walz proposed Tuesday, is a one-time only appropriation. But what about the centerpiece of the House DFL 2020 agenda? The Great Start for All Minnesota Children Act would spend $190 million for early education scholarships; $190 million to reduce waiting lists for child care assistance; and $22 million to help child care centers increase pay for staff and other programs. The source of the money to pay for it: the surplus. 

But is the House’s DFL leadership really intending to provide more early learning slots, more child care space and more pay for child care staff — and then yank it all away when the current budget period ends, on July 1, 2021?

Even if the increased spending can’t be continued in future budgets, the one-time boosts will help a class of kids who will carry that advantage throughout their schooling, says House Speaker Melissa Hortman. Or as she often says about the proposals: “You’re only three once.” 

Yet when pressed, Hortman acknowledges that the goal is to keep those programs funded into the future. “While we’re looking for ways where one-time money can go in and make a difference, there are elements of this plan where it would require an on-going commitment,” the Brooklyn Park DFLer said. “We’re not going to increase a pay rate and then cut it later.”

Tax cuts can have an impact on future budgets as well. Senate tax committee chair Sen. Roger Chamberlain, a Republican from Lino Lakes, was asked whether the GOP’s plan would put the state into a deficit in the next biennium.

“Numbers sing and dance. We can make them work any way we want,” he said.

Neither chamber appears ready to accept the other’s priorities, however. And even if they did, Walz might prove to be a barrier. Said his Commissioner of Management and Budget Myron Frans: “Using one-time surplus money to pay for ongoing tax cuts would be unsustainable for our budgetary balance in the out years and would likely prevent restoring the rainy-day fund.”

What’s been proposed

On the spending side, in addition to the DFL’s $500 million plan for early education and childcare, there’s a push to spend $150 million in one-time solar installations and other means to reduce carbon emissions; $30 million for the disaster relief account; $30 million to build out the final mile connections for rural broadband access; an unspecified amount to help public housing authorities install fire sprinklers in high-rise apartments; and a bill to increase the general education funding formula for public schools by 1 percent in time for the 2020-2021 school year, a boost that would cost between $75 and $100 million. On Friday, a coalition of Twin Cities African-American community groups said they will ask Walz for $20 million to help them respond to the impacts of gun violence.

Also still floating around the Legislature: a plan to increase the pool of money available to make schools safer, and a $50 million appropriation to refill a loan program to assist farmers.

On the tax cut side is a proposal by Republicans who control the state called “Get Your Billion Back, Minnesota.” It would eliminate taxation on all Social Security benefits; reduce the lowest income tax rate from 5.3 percent to 4.9 percent; expand the K-12 education tax credit; and make several other tax changes that would consume most of the surplus.

House Speaker Melissa Hortman
MinnPost photo by Peter Callaghan
House Speaker Melissa Hortman, center: “We think the most important thing is to get kids off to the right start.”
Meanwhile, House GOP leaders have a bill that would eliminate the Health Care Provider Tax, the renewal of which was the centerpiece to last May’s bipartisan budget deal. That’s worth around $600 million a year.

While the surplus is currently listed as $1.33 billion, that could change when the state Office of Management and Budget releases an updated revenue and spending forecast on February 27. Legislative budget and tax chairs are guessing that it won’t reduce the surplus and might increase it, which would only increase the pressure to spend the money.

Both House DFLers and Senate Republicans have cast their proposals not just as numbers in a budget but moves that will help real people.

“We think the most important thing is to get kids off to the right start,” Hortman said before the session began. 

Added DFL House Majority Leader Ryan Winkler: “We have worked to end destructive Republican budgets that have shortchanged Minnesotans on behalf of the wealthy, corporations and insurance companies.”

In setting out the parameters of a tax bill, Sen. Roger Chamberlain, R-Lino Lakes, said: “This is fundamentally about people, it’s not just about numbers — it’s about real people, real lives and what they do with it.”

Even Walz, while trying to tamp down spending desires, tried not to sound opposed to the DFL legislator’s spending priorities. “I’ve said this often, budget documents are more than fiscal documents, they’re moral documents,” Walz said. “This is an opportunity for folks to talk about what they value. I think at this time this is all worthy conversation.”

‘We can’t do everything’

While caucus leaders at the Capitol have are the ones who announce broad plans, the work of delivering on those pronouncements is handed over to the chairs of the two spending committees, House Ways and Means Committee Chair Lyndon Carlson, DFL-Crystal, and Senate Finance Committee Chair Julie Rosen, R-Vernon Center.

Once the forecast is released on Feb. 27, Carlson will start drafting a budget resolution; Rosen will do likewise. On Thursday, both tried to sound open to spending and tax cuts, but also to create realistic expectations.

“We had a budget bill last year, and a significant one,” Rosen said. “So any requests from agencies, they’re gonna have to really explain why they need that, have some accountability measures in place, show where they are saving money. We need to rein in some spending.”

Sen. Roger Chamberlain, Senate Majority Leader Paul Gazelka, and Sen. Paul Anderson speaking on Thursday about the budget surplus.
MinnPost photo by Peter Callaghan
Sen. Roger Chamberlain, Senate Majority Leader Paul Gazelka, and Sen. Paul Anderson speaking on Thursday about the budget surplus.
She cited disaster relief, the farm loan program and school safety as areas where one-time money could flow, even if she also said she’s already worried about the next budget.

“But on the whole, there’s nothing wrong with sitting back and saying if you want to spend more money you’d better show me a good reason why.” she said. 

Carlson said there is some capacity in the current forecast to add up to $255 million in on-going spending, but he also said the GOP tax proposal would put the state into a deficit next budget. He has been meeting with the chairs of the Ways and Means subcommittees to hear what spending requests might be coming in.

“I’m a former teacher of economics; you talk about wants and needs,” Carlson said. “We’ll begin to build the budget from there once we know what’s available.

“Requests are always much greater than the ability to cover them will be,” he said. “The reality might be that they have to be scaled back or they may have to be put on the waitlist for the next biennium. I’m not gonna say anything is dead in the water yet, but I watch the bill introductions and I know we can’t do everything that’s being requested.”

Comments (29)

  1. Submitted by Scot Kindschi on 02/21/2020 - 12:15 pm.

    It should be saved for when it is needed. Or, we could just give refunds to try and buy votes like Ventura and the republicans did in the past. A lot of good that did.

  2. Submitted by Dennis Wagner on 02/21/2020 - 12:35 pm.

    “he also said the GOP tax proposal would put the state into a deficit next budget.” What is that saying; if the only tool in your tool box is a hammer, all your problems will look like nails! Nothing new here folks,

  3. Submitted by Bob Barnes on 02/21/2020 - 01:11 pm.

    Give it back to the taxpayers. No more spending. MN is one of the highest per capita spending states around. WI has a larger population, same weather yet their budget is about 15% smaller than Minnesota’s.

    If it is a surplus then giving it back won’t lead to a deficit. It would simply lead to a balanced budget.

    • Submitted by Don Wallen on 02/22/2020 - 02:41 pm.

      OK then, but I assume that if a deficit occurs in the future, you will be fine with a tax increase. Or would you cover the deficit with a reduction in help for the less fortunate?

      • Submitted by Michael Milligan on 02/22/2020 - 08:13 pm.

        The game republicans like to play is to drain any emergency fund , cut taxes to the bone, and when a recession hits, cut services. I’ve seen it before, it is in their long game plan. The republicans just can’t not govern competently at all.

      • Submitted by Bob Barnes on 02/23/2020 - 07:36 am.

        No because that’s poor policy. Cut spending so you never run a deficit nor do you pile up any debt. There is more than enough room to cut a billion or 2 out of a 48.5 billion dollar budget (a whopping 2-4% cut).

    • Submitted by Dennis Litfin on 02/23/2020 - 11:14 am.

      Mn/Wisc population difference is insignificant…less than 1/2 of 1%. What is significant between the two states is that Wisc. is still suffering the effects of the Walker governing era and will until they turn their Senate over to responsible people-oriented representatives.

  4. Submitted by Ray Schoch on 02/21/2020 - 01:14 pm.

    Sigh. The only idea Republicans have had since I arrived a decade ago is “cut taxes.” Or, to be fair, whatever it is that ALEC proposes, including much heavy breathing over nonexistent voter fraud.

    It’s a gigantic pile of money, which will melt away as quickly as sand in a Pacific surf unless there’s some fiscal restraint practiced by both parties. Ending taxes on Social Security is a nice idea, but it’s pretty costly, and – speaking as a 75-year-old – I’d rather see that money go into Pre-K education. The few dollars I’ll gain from its implementation isn’t going to change my modest lifestyle to one like Michael Bloomberg, and I’d rather be surrounded by happier, better-nourished children who already know their letters and colors than by TV or digitally-addicted kids who don’t know how to carry on a conversation.

    Frankly – surprisingly, no one from the legislature has asked me what I think about this – I think item #1 on the list ought to be paying back the $400+ million the legislature borrowed to make the current budget balance. In a rational world, that’s called deficit spending, and it’s not sustainable, as many a debt-ridden family has proved repeatedly over the years. Paying back those borrowed millions will reduce the surplus significantly enough that DFLers might think twice about new spending proposals, and Repubs might think twice about cutting taxes, especially when they’re no longer credible as the “party of fiscal restraint.”

    • Submitted by Bob Barnes on 02/21/2020 - 01:40 pm.

      Cutting taxes is a good thing. MN is one of the highest taxes states. They are driving people who have money and good jobs out of the State. That only makes things worse as revenues fall. It’s long past time MN cuts spending. We spend more than 15% above what WI spends and they have more people.

      MN budget comes out to about $9,145 per person. WI is about $7700 if memory serves while SD only spends about $2,000 per person (I think their budget is annual so even if we split MN spending in half it’s still more than double what SD spends per person).

      Fyi, nutrition and learning colors and shapes is a family issue not a public school/taxpayer issue. I shouldn’t be paying for your kids nor should you pay for mine.

      • Submitted by Dennis Wagner on 02/21/2020 - 03:10 pm.

        Based on the comments some folks put out here, education has to be community, governemnt lead. It is crystal clear that some folks have done (continue to do) a horrible job teaching their kids, themselves what reality and honesty are much less understanding, math, economics, diversity, science…. etc. They are totally ill prepared for the challenges of today, much less 50-80 years ago where they appear to mentally dwell.

    • Submitted by Gerry Anderson on 02/23/2020 - 06:00 am.

      Cutting taxes is and always has been a misnomer. In actuality, it’s paring down the increases every state agency says it needs every year. We have no fiscal restraint in this state since the DFL has been in charge.

      I know of three or four high income families that have left for lower tax states. And that’s just me. The rate you take and the way you spend matters.

  5. Submitted by Mike Downing on 02/21/2020 - 01:15 pm.

    I suggest the Democratic House & Governor talk to New York, New Jersey, Illinois, California, etc. learn why people are moving out of their states to Texas, Nevada, Tennessee and Florida. The Democrats should avoid the same mistakes by spending too much taxpayer money that requires higher taxes.

    • Submitted by Bob Barnes on 02/21/2020 - 01:47 pm.

      Considering we are 5th highest overall and 4th in income taxes, too many have already fled the State. More will keep leaving as well. Those who do well and have money to tax will leave and be replaced by those who pay no taxes and consume a lot in govt services. You see it all time as businesses flee to SD or Iowa to avoid the taxes and regulations. There was an article out a few years ago about how many billions in revenue lost due to people leaving under Dayton and his crazy taxes.

      • Submitted by Dennis Wagner on 02/21/2020 - 03:01 pm.

        Fact check suggests (False conclusion) And where did you pull that one from?

        Evidently you have not been down town/NE/North Loop/West end, in what 2-3-4 decades? Suppose all those apartments and condo’s going up, just to go up, just for show, no one is actually going to live in them.

        According to the Met Council, Minneapolis has a population of 429,382 residents as of 2018, adding more than 46,800 people since 2010, equivalent to 12.2 percent growth. St. Paul has a population of 313,010, adding 27,900 people, for 9.8 percent growth.

        In 2018, Minnesota households earned a median $70,315 in income, that ranked # 14 from the top, guess that’s a bad sign in republican land! Much better to be a low taxed solid republican state like Mississippi @ $21,036. Making < 30% and the majority of that is Federal assistance, Mississippi ranks #6 in sucking off the government teat.

        • Submitted by Bob Barnes on 02/21/2020 - 03:36 pm.

 An estimated 1+ billion in taxable income lost in 2013 and 2014 alone.

          What you misrepresent is that richer people are leaving while poorer people are coming in. That’s a bad trend for a state relying so heavily on tax revenue. Poorer people pay much less in taxes while consuming more in public assistance.

          I wouldn’t be so quick to rely on median household income without first comparing what makes a household in each state. For instance what percent of households in each state have 2 income earners? Obviously if MN has more 2 income households then median household income will be higher. Having a somewhat higher household income doesn’t mean you have a lot of high paid individuals. It just means more income earners live in the same house in many cases. I’m also not sure why you compare 2 completely different states. MS has no bearing on MN. The conditions in both states are vastly different. Also your data is flawed because I see many places listing MS at over 40k for median household income not 21k.

          • Submitted by Dennis Wagner on 02/21/2020 - 05:28 pm.

            Your “Alpha” source is pretty poor!

            Overall, we rate Alpha News Questionable based on extreme right bias, poor sourcing of information, promotion of conspiracy theories and anti-Islamic propaganda, as well as a lack of transparency regarding ownership. (Looks like 1 level from unadulterated propaganda)

            The rest of your argument looks made up, concocted, get some “legitimate” support.

            Feel free to do all that investigative and comparison and derivative stuff you are talking about doing to prove your case, Lets see your scientific results. As noted earlier: “Citing reputable sources is not something I readily associate with Mr. Barnes’ claims, but I’d be happy to be convinced otherwise”.

      • Submitted by Paul Yochim on 02/22/2020 - 08:19 am.

        As one who fled the state of Minnesota I can honestly say that the high state income taxes do not equate to a better quality of living for me. My property taxes are less than half of what I was paying in Washington County, state income tax does not exist and the quality of government services here is just fine.

        A budget surplus amounts to nothing more than over taxation of the hard working people of the state. Sure, the wealthy can find loopholes and the snowbirds can spend their 6 months and one day in Arizona or Florida. But this leaves an increased burden on the working stiffs who are paying state income taxes at a higher percentage than millionaires in states with a more reasonable state tax.

        • Submitted by Matt Haas on 02/25/2020 - 08:58 pm.

          Good grief, you live in a STATE with a population what, a quarter of the Twin Cities metro, a great deal of which is in federal ownership and unpopulated, and have the gall to suggest that their government services are on par with ours for ridiculously lower taxes. Duh, of course they are, because they only have to provide them for a fraction of the population, in a minute fraction of the actual landmass, and receive hefty federal government support to do so. Quit being duplicitous in the service of advancing your narrative.

    • Submitted by Michael Milligan on 02/22/2020 - 08:18 pm.

      The #1 reason people relocate from cold weather states like New York, New Jersey, Minnesota, Wisconsin, etc is ………. weather!

      • Submitted by Paul Yochim on 02/23/2020 - 08:36 am.

        Michael, I can only speak for myself but in my case that is not true. I fled to the state for Wyoming, first to be closer to family and second for taxation (or lack of) reasons. It would have been costly for me to retire and remain in Minnesota where the legislators look at your assets as their own personal piggy bank. I’m not the recipient of some cushy government pension, having retired on my savings.

        It would be interesting to see how much revenue the state is losing from the snowbirds who declare residence in a more tax friendly state and then live in Minnesota for 6 months minus one day. These are the people who are cheating their fellow Minnesotans by using 6 months of government services and paying very little for them.

  6. Submitted by Jim Smola on 02/21/2020 - 07:04 pm.

    There should be absolutely no tax decreases.

    The reason for the budget surplus is an economy that has very high employment. That translates into the surplus. When we have a downturn there will be deficits.

    By leaving the tax rates as they are, any future deficits will be minimized which lessen the impact of the downturn.

    • Submitted by Paul Yochim on 02/22/2020 - 02:17 pm.

      Jim, the reason for the budget surplus is over taxation.

      • Submitted by Don Wallen on 02/22/2020 - 03:38 pm.

        Yes, and deficits are always due to overspending. You guys like to cut taxes in the good times and reduce spending in the bad times. This is a recipe for a downward spiral to a libertarian paradise ala Somalia.

        • Submitted by Bob Barnes on 02/23/2020 - 07:45 am.

          Actually that is entirely false statement. Cutting spending is always good because it means less taxation so the money stays in the hands of those who earn it and know best how to spend/invest it. Govt spending does not end bad economic times, it actually makes them worse. The proper course of action (esp at the federal level) in an economic downturn is for the govt to cut spending which allows the bad actors to go bankrupt instead of bailing them out and it lets people keep more of their own money to weather the bad times. Look at the 1920-21 (great) depression as an example. Federal spending was cut massively and the depression ended by 1923. Unlike 1929 where spending was increased and the depression didn’t end until WWII (almost 20 years later).

          If you keep government small, you have much smaller fluctuations in the economy… bad times don’t become nearly as bad (because those who skew the markets don’t get bailed out and go bankrupt early in the downturn).

          • Submitted by Dennis Wagner on 02/24/2020 - 10:33 am.

            Please explain: If folks don’t have any money i.e. they are broke, during tough times, no jobs or income to be had, how does keeping more of nothing help them get out of their situation?

  7. Submitted by Tom Anderson on 02/21/2020 - 10:42 pm.

    The surplus is an illusion to be swallowed up by inflation. Pass a bonding bill and go home. That alone will take the whole session.

  8. Submitted by PHILIP GRANT on 02/22/2020 - 07:24 pm.

    Tom’s comment reminds me that our legislators have yet to apply (or not apply) inflation to both sides of a budget, i.e., revenue and expenses. My understanding–correct me if anyone has more up to date info–is that in 2002, the Legislature said forecasts should include the impact of inflation on state revenue collections but not allow for an inflationary increase in most expenditures. They had to make an exception for welfare programs that include a federal match, to satisfy federal rules.

    We’ve been stuck with this ever since. Pawlenty once vetoed a tax bill because it included a provision that put inflation back into state forecasts.

    As far as I know, this confusing situation has yet to be addressed. I wish it would be, for the sake of clarity and better budgeting. Either factor in inflation on both the revenue and expense sides, or not.

  9. Submitted by Phyllis Kahn on 02/23/2020 - 12:42 pm.

    I make the same comment every time this issue comes up. The numbers are not right because the forecast includes inflation in the input and not in the output.A very easy correction to make.

    • Submitted by Tom Anderson on 02/23/2020 - 08:41 pm.

      And yet in your many years of service it was never “easily” done. And it won’t be anytime soon as long as the present method continues to show surpluses…

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