MN forecast may show surplus, but are lawmakers in a spending mood?

State political leaders hope to unwrap a nice little present today — a new economic forecast that many at the Capitol believe will show a budget surplus approaching $1 billion.

But while the new numbers this morning will set the tone for budget talks starting next month, leaders in both political parties are dampening hopes that an upbeat economic forecast will lead to more spending.

DFL Senate Majority Leader Tom Bakk of Cook expects the forecast to project a budget surplus, but he doesn't think it will be large enough to cover the inflationary increases on ongoing spending obligations. That means lawmakers will have to cut some spending, he said, adding that he's not interested in raising taxes.

"There is little or no appetite among most senators in my caucus to raise new general fund revenue," Bakk said. "So, unless the budget forecast goes south on us, I think we're going to try to work within the general fund revenues that we have."

• Earlier: Budget reserve gets a boost, hits record high

There's no doubt state finances turned a corner last December. The forecast released then showed a healthy budget surplus that ended a string of projected deficits.

Gov. Mark Dayton is predicting a budget surplus of about $900 million. That's about 2.5 percent of the state's two-year $34 billion budget. He said he based his guess on the projections in last February's forecast, as well as subsequent reports on state tax collections and spending.

He'll use the forecast numbers to shape his two-year budget proposal, which is due by Jan. 27. He's offered few details about what might be in it, but during his re-election campaign he talked about increased school funding and child-care tax credits.

"I think our economic foundation is very solid in Minnesota," Dayton said, though he cautioned that the new forecast will also factor in national and international economic conditions since last February.

Legislators will make final budget decisions based on the next forecast, which comes out in late February or early March. Under a new law enacted last session, a portion of any surplus is committed to boosting the state budget reserve. There is no longer any money owed to schools from previous budget-balancing deals.

A surplus would run counter to Republicans' election-year warnings that tax collections were not keeping pace with spending growth. It was one of the campaign messages they used to win control of the Minnesota House.

A surplus would make everyone's job easier during the 2015 session, although it won't stop Republicans from taking a hard look at spending, said soon-to-be House Speaker Kurt Daudt, R-Crown.

"We need to analyze everything that state government does and make sure that we're doing it effectively and efficiently," said Daudt. "We need to innovate, and we need to think about are there new ways or better ways to do the things we're already doing. I think if we focus on those sorts of things, we should have a pretty successful next couple of years."