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Continued: Dayton eyes tax cuts with projected $1 billion state surplus

  • Article by: BAIRD HELGESON , Star Tribune
  • Last update: December 6, 2013 - 6:48 AM

The economic picture might have been even stronger, the forecast report noted, but for the damaging effects of a federal government shutdown and sequestration cuts on the state.

“These things have taken a toll on consumer confidence, spending, investment and hiring,” said state economist Laura Kalambokidis. However, she said, “the fundaments for solid growth are in place.”

Those fundamentals are at least partly why state budget officials are predicting an even larger $2.2 billion windfall in the 2016-17 budget year, although predictions that far out seldom hold.

Spending down

Spending is projected to drop by $247 million over the next two years, which helps push the surplus over the $1 billion mark.

About half of that lower spending is due to anticipated savings from the Department of Health and Human Services, said Margaret Kelly, state budget director. Changes in a program for the elderly contributed to much of the savings, she said. The state also expects to pay less for the federal Medicare prescription drug program.

Debt burden for long-term construction projects also is expected to shrink. An analyst from Moody’s Investors Service credits Minnesota for having a small, manageable debt load.

Tough to predict

Dayton said that if the state’s financial numbers hold up by the time legislators convene in February, he would consider borrowing an additional $200 million to continue improving the state’s roads, bridges and buildings. Legislators want to borrow about $850 million for construction projects in the upcoming session.

“I think we can completely justify having it done,” Dayton said.

But state officials will have to move cautiously.

The budget snapshot accounts for fewer than six months of the two-year budget cycle. If legislators hastily spend the money in the coming session, an economic downturn could force them to return to make cuts, raise taxes or drain reserves again. Forecasters note that another meltdown in Washington, D.C., over the debt ceiling or other budget issues could trigger such a downturn.

There is also more volatility built into this forecast, because it relies heavily on a new income tax tier for the state’s highest earners. High earners get much of their revenue from non-wage sources, such as bonuses, that can rise or fall quickly.

That makes revenue from the new tax tough to predict, unlike trends of the other taxes they have been able to study for years, Schowalter said.

That uncertainty is at least partly why Dayton said he will wait until after the next forecast before offering a supplemental budget.

“I don’t want to fall into that trap of overpromising,” he said.

Republican critics

Republicans said DFLers already have a wish list far exceeding the surplus.

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  • Margaret Kelly, state budget director, and Jim Schowalter, commissioner of Minnesota Management and Budget, couldn’t help but smile when the new economic forecast was released on Thursday.

  • Minnesota Budget Forecast

    Fiscal year 2014-15

    $1.086 billion surplus

    Revenue up S787 million

    Spending down $247 million

    $246 million will repay K-12 schools

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