Several days ago, Minnesota's economic experts passed along news that will ultimately play a major role in lawmakers' decision making process for the 2016 legislative session.
They found that Minnesota is sitting on a $900 million budget surplus for the 2016-17 budget cycle. This total is down from the previous $1.2 billion surplus forecast that was announced in November.
What contributed to the decline? According to the Minnesota Management and Budget Office, lower than expected income growth reduced individual income tax receipts by $95 million; lower than expected sales tax growth combined with higher projected refunds reduced the general sales tax forecast by $311 million; and slower forecast corporate profit growth took $93 million out of the corporate tax forecast.
In addition, less momentum at the end of 2015 contributed to a weaker U.S. economic outlook. There were three negative influences: a glut of business inventories, depressed oil-related investment, and the drag on global trade from the stronger dollar.
From my perspective, any time we have a surplus we should view it as good news. However, the fact that Minnesota suffered a net loss of roughly $300 million in three months should make lawmakers pause. It's a good reminder that it doesn't take long for economic growth to slow both at the state and the federal levels.
That said, legislators must decide how to allocate $900 million before session concludes.
State government is already fully funded for the next two years. It's also worth remembering that any new, permanent spending we put into place only increases our future financial obligations.
Minnesota has also done a good job of setting money aside if and when we face another budget deficit, as we now have roughly $2 billion in our rainy day fund.
With that in mind, I believe we should be focused on some form of tax relief for middle-class Minnesotans. It's time to prioritize those who created this surplus in the first place and let them keep more of their hard-earned money in the future. If we choose to spend any of it, my preference would be for that revenue to be used on one-time spending items like roads and bridges.
If you have any questions or comments on the surplus or any other Capitol issue, do not hesitate to contact me. I can be reached by email at rep.john.petersburg@house.mn, or call my office at 651-296-5368.