Minnesota boosts budget reserves to a high of $811M

Fund is increased automatically when there are surpluses.

Management and Budget Commissioner Jim Schowalter

Minnesota added more stuffing to its financial cushion to soften the effect of tough economic times.

On Tuesday, the start of a new fiscal year, the state boosted its budget reserves to $811 million. The reserve amount, which will be increased automatically if the state has budget surpluses, now is at the highest level in state history.

The budget reserve fund, which long stood at $653 million, serves as the state’s savings account for tough times. During budget downturns, governors and Legislatures pull cash from the fund to backfill deficits.

The $150 million boost to the so-called “rainy day fund” gives state ledgers a bit more leeway should accounts turn red again.

DFL Gov. Mark Dayton and his chief financial steward cheered the cash bump.

“Increasing the budget reserve helps the state manage economic risk and is viewed positively by the state’s bond rating agencies,” Minnesota Management and Budget Commissioner Jim Schowalter said.

The move to lift the reserves and make future increases automatic was little noticed during this year’s legislative session, when attention was centered on the minimum wage, medical marijuana and building projects. But budget-watchers say it could give Minnesota long-term stability to ease the periodic dips in state finances.

“Minnesota has finally turned the corner on a decade of deficits that shortchanged our students and stymied needed progress for our state,” Dayton said.

According to a Pew Charitable Trusts study, Minnesota has had a less robust reserve fund than many other states.

But like other states, Minnesota often tapped the fund in recent downturns. The Minnesota fund was essentially empty in 2002, 2009, 2010 and 2011, after leaders approved dipping into it to wrestle down deficits.

Republican leaders say the state should not be adding to budget reserves because it inappropriately shields state government from making hard choices.

“We shouldn’t be padding our bank accounts with the taxpayers’ money,” said Sen. Dave Osmek, R-Mound.

Senate Minority Leader David Hann, R-Eden Prairie, said the new automatic increase in the state’s reserves is particularly troublesome because it puts the state’s reserve fund growth on autopilot when lawmakers and the governor should be weighing state reserves against other budget needs.

“That’s a problem,” Hann said.

This year the state had a surplus and is expecting one in the next year as well. But recent monthly budget updates have shown the state not meeting forecast expectations.

“These early indications show Minnesota’s economy is not responding favorably to Democrats’ policies of increasing taxes and wasteful spending,” House Minority Leader Kurt Daudt, R-Crown, said last month.

The state’s latest revenue update, reported in early June, found that Minnesotans paid more than $1.4 billion in state taxes in May, about $17 million less than state budget officials predicted.

State officials have long warned that the monthly estimates may not give an accurate picture of long-term expectations.

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