Sighs of relief were audible throughout the State Capitol on Thursday morning as word spread that, despite expectations to the contrary, another budget deficit is not awaiting legislators when they reconvene next month.

Instead, state finance officials reported that the state's books are projected to be $876 million in the black when the current budget period ends on June 30, 2013.

The relief is warranted.

It's been nearly five years since a state budget forecast projected a positive balance -- and that was during a brief interlude in a decade otherwise marked by economic and fiscal trouble.

It's too soon to start humming "Happy Days Are Here Again" -- not when 192,000 Minnesota workers remain unemployed, substantial uncertainty clouds the global economy and the forecasted 2014-15 state budget still has $1.3 billion in red ink on the bottom line.

But Thursday's totals spare Minnesota from the brutish consequences of a midbiennium deficit -- cuts in state services, layoffs of government workers, tax increases and/or more borrowing from schools or from future state revenues.

The good news should buoy confidence among consumers and investors that the state's slow recovery will continue and might even quicken.

"Don't call it a surplus," cautioned a state finance spokesman about the $876 million balance. His point is well-taken.

Minnesotans shouldn't think that Thursday's forecasted balance is available for tax cuts or pet projects. The entire amount is already spoken for in state law.

It goes to replenish a cash flow account and reserve fund that were depleted several years ago, when the state's latest fiscal woes set in.

Even when fully funded, those two cushions against financial shocks are meager for a state budget as large as Minnesota's.

They deserve first claim on a positive general-fund balance because they are stabilizers if and when economic turbulence recurs. They stave off government moves that would make bad situations worse.

State economist Tom Stinson was emphatic Thursday about the need to restore the two reserves: "The best thing we can do to help the economy is to prevent additional shocks. We've got to get back on an even keel. Before this forecast came out, we really had no savings in the kitty to deal with disruptions. ... We need to rebuild that reserve."

To their credit, lawmakers in both parties generally concurred with that advice, while leaving themselves wiggle room for some budget adjustments during the session set to reconvene on Jan. 24.

They also acknowledged that current law lays a claim on any additional fund balance that appears in the next forecast, due on Feb. 29.

After the reserve fund is refilled, any additional surplus dollars are slated to be sent to school districts to repay the nearly $2.8 billion borrowed and "shifted" from their books in the last several years.

Climbing out of the school shift hole likely will take years. But that doesn't mean that lawmakers can't start whittling down the 2014-15 deficit next year.

They can build on 2011's scant but hopeful signs that DFL Gov. Mark Dayton and Republican legislative majorities can find common ground when they set aside their differences on tax policy and seek to make government operations more cost-effective.

Republican legislative leaders hailed Thursday's forecast as evidence that the economy is responding favorably to the government spending diet they imposed. In fact, the forecast projects relatively lackluster growth continuing, with employment not back to prerecession levels until 2014.

Thursday's good news derives more from reductions in projected health care spending than from jobs-related increases in income tax collections. Those increases were the product of a recalculation of state taxes paid in 2010, not of a recent uptick.

The essential fuel for Minnesota's economic growth isn't government spending restraint. It's a well-educated, highly productive workforce -- and that asset is at risk when government goes on a diet that's too extreme.

The state budget has rebounded back into the black for now. But the challenge of keeping government solvent while building the human capital a strong economy requires is as great as ever.

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