Breaking down Minnesota's budget surplus

CATHY WURZER: Our top story-- Minnesota still has a projected budget surplus. State budget officials presented their latest financial forecast this morning, and it projects a $3.7 billion surplus for the budget ending in 2025. That is up by about $1.3 billion compared to the prior estimate back in December.

But there is still some potential tougher financial straits down the road. Our Senior Politics Reporter Dana Ferguson was there and joins us to discuss. All right, Dana, let's start with the big picture, shall we? Generally speaking, how is Minnesota's economy doing right now?

DANA FERGUSON: State budget leaders say it's plugging along. The workforce continues to do well, and corporations overperformed expectations across the board. That meant the state brought in more tax dollars than it forecast last year. And they expect that the economy will continue performing pretty well into the next two-year budget cycle that starts next summer. Listen to how Governor Tim Walz framed it.

TIM WALZ: It is morning in Minnesota, and that's where we feel right now. Coming out of a pandemic, coming out of a global recession, or potential for a global recession, Minnesota is well-positioned for a future economy as any place in the world.

CATHY WURZER: All right, but much like the last budget forecast, there are these words of caution used about what's on the horizon. Did budget leaders have something to say about that?

DANA FERGUSON: Yes. They noted that while the economy is strong and they expect that it will continue to do well in the next few years, there are steps lawmakers should take now to mitigate a potential deficit. Heading into the next budget, financial officials project an imbalance, not a deficit. That's because lawmakers last year approved a $72 billion budget.

If lawmakers save most of the projected budget surplus this year, there won't be an impact to the state's bottom line. Here's Minnesota Management and Budget Commissioner Erin Campbell.

ERIN CAMPBELL: In order to protect the investments that were made in programs that serve Minnesotans, it will be important that policymakers exercise caution in enacting additional ongoing spending this legislative session.

CATHY WURZER: OK. At the last update in December, Dana, there was this hesitation to use the word "deficit." I noted that you mentioned it's an imbalance, not a deficit, that's according to state officials. But why are officials still shying away from the word "deficit."

DANA FERGUSON: Yeah. Campbell and others really made a point of noting that they're not yet predicting that the state will go into the red. And they emphasize that if current spending and tax intake numbers hold, the state will still have a surplus when the next budget starts. But, as she mentioned, any ongoing spending approved this year could move the needle on that.

CATHY WURZER: And state legislative leaders have said they want to try to rein in spending. What did they say about this report?

DANA FERGUSON: DFL leaders said they were keeping their sights pretty narrow this year to let many policy and spending changes past last year rollout. And the slightly higher surplus doesn't shift that by much. The governor and DFL leaders said the capital investment bill will still be the main focus this year.

That's the one that finances construction projects around Minnesota through long-term borrowing and other types of one-time spending. Some policy and minor spending changes could also come along too, but House Speaker Melissa Hortman said she'll be focused on keeping money on the bottom line and, in her words, they won't make commitments they can't pay for.

CATHY WURZER: OK. What did Republicans have to say about this?

DANA FERGUSON: They said the Democrats put the state into this situation by passing such a hefty budget last year. And they said they'd pressed this year to get additional tax relief for Minnesotans and aimed to block new spending. House Minority Leader Lisa Demuth summed up that sentiment.

LISA DEMUTH: When you look at your family budgets, if you are spending more than you are actually taking in, that results in a future deficit. So despite a continually growing economy, there still isn't enough tax revenue to meet the DFL's spending demands. This goes to show that we have a spending problem in Minnesota, not a revenue problem.

CATHY WURZER: OK. So when you look at it all here, Dana, how much did this move the needle in what folks at the Capitol are expected to do this session? What might the session look like?

DANA FERGUSON: It really didn't change very much. It's still hard to see lawmakers making dramatic moves on the budget this year after last session's big lift. But one thing it did do is feed the political messaging. Each side is drawing on portions of the forecast to amplify their campaign talking points. Because, at the end of the day, it's an election year, and both parties are trying to present a different case to voters.

CATHY WURZER: All right. Dana Ferguson, thank you.

DANA FERGUSON: Anytime, Cathy.

CATHY WURZER: Dana is MPR News Senior Politics Reporter.