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An upbeat Gov. Mark Dayton, right, and Management and Budget Commissioner Jim Schowalter discussed the budget on Wednesday.

David Joles, Star Tribune

$323M surplus forecast for state budget, but ...

  • Article by: JIM RAGSDALE and RACHEL E. STASSEN-BERGER
  • Star Tribune
  • February 29, 2012 - 11:34 PM

An improving economy is giving Minnesota a $323 million budgetary cushion, but that money will immediately fly out the door to refill reserves and pay down debts to public schools, state officials announced Wednesday.

The economic forecast released Wednesday had other good signs: Minnesota's unemployment rate is dropping and at a rate faster than the national average. Revenues are flat, but the state's spending is in line with what it is taking in.

Fully two-thirds of the budget improvement stems from lower-than-expected costs in health care and slightly lower school enrollment.

The smallish surplus allows the state to fully replenish its budget reserves and make a $318 million down payment on the $2.4 billion it owes schools.

"It's further proof that Minnesota's economic recovery is underway, slowly but surely," said DFL Gov. Mark Dayton. "We are still, however, a long ways from getting out of our financial hole."

Minnesota Management and Budget Commissioner Jim Schowalter said the state "has continued to go in a holding pattern. Certainly we have our fiscal work ahead of us."

Republicans, who control the House and Senate, were quick to claim credit for the state's upturned fortunes. "It's a reaffirmation that the Republican plan is working," said Senate Majority Leader Dave Senjem of Rochester, noting that finances improved without a tax hike. "We're excited. We're proud," he said.

But Dayton said that credit claim "doesn't jibe with reality." He pointed out that "their policies are one of the reasons we still owe the schools $2.4 billion." Dayton said that debt would not exist if Republicans had approved his plan to raise taxes on the wealthy, and he reiterated his intention to push for a tax increase again next year.

Dayton said neither side deserves credit for the biggest factor in the good news -- $108 million in the lower-than-expected spending on Medical Assistance. Fewer people signed up for those programs, partly because they were newly available to some and also because the economy is starting to improve, experts said.

By law, much of the surplus must be devoted to repaying school districts for payment shifts adopted last year to fix a record $5 billion deficit. In school districts battling their own budget programs, the coming payment will offer some relief.

"Every little bit helps," said Eugene Piccolo, executive director of the Minnesota Association of Charter Schools.

"The state basically borrowed from school districts and the school districts borrowed money from the banks," said Jaber Alsiddiqui, chief budget analyst for the St. Paul schools. He said his district was forced to borrow money to close the gap in state payments, and the new state money will allow the district to deal with some of their own debt obligations.

State outpaces U.S.

Schowalter and state economist Tom Stinson released a new forecast of revenues and expenditures for the current budget period, which ends in mid-2013, as well as estimates for the biennium after that. Minnesota's success is tied to national performance. Minnesota's December unemployment rate of 5.7 percent compares with a national rate of 8.5 percent. Although Minnesota typically does better than the nation on job numbers, the difference this year is greater than the normal spread.

"We expect the Minnesota economy to do just a little better than the U.S. average," said Stinson, who noted that troubles in the giant economy of California have brought down the U.S. average.

Stinson said the state's national forecaster, Global Insight, now believes there is less chance of a recession this year and expects steady growth in the nation's gross domestic product. But he said possible "shocks" include the nuclear weapons conflict with Iran and its possible effect on oil prices, the resolution of the European debt crisis and tax-and-spending decisions that Congress and President Obama will face.

Schowalter said that because the state used one-time infusions such as the school funds to pay for permanent programs in this budget, the budget in the next biennium begins $1.1 billion out of whack. Add inflation and any remaining school debts and the future doesn't look so hot.

But Stinson chose to focus on the present. He noted that Wednesday was Leap Day, Feb. 29, giving the state budget a chance to earn an extra $6 million in sales tax revenue. "I want you to go out and spend money on taxable items," he joked. "Six million dollars -- that's all we ask."

Jim Ragsdale • 651-925-5042 Rachel E. Stassen-Berger • 651-925-5046

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