Steady as she goes. That’s the signal Minnesota lawmakers should hear from Tuesday’s forecast of a $1.65 billion state general fund surplus through mid-2019 — $250 million more than was forecast just three months ago.
Thankfully, the trend line is in the right direction. But in a biennial budget of more than $45 billion, the new surplus is not a large sum. Given the notorious volatility of this state’s income- and sales-tax revenue streams and the unpredictability of federal-state fiscal relations in the Trump era, state revenue trend lines might bend on short notice.
What’s more, the primary force that’s pushing up state revenue — inflation in wages and prices — is omitted from the spending side of the forecast’s ledger. The Legislature’s decision 15 years ago to omit inflation forecasts from all but a handful of state spending lines allows Tuesday’s new numbers to present an unrealistically rosy picture.
The same labor shortage that is driving up private-sector wages is also making hiring difficult in schools, courts, home health care services and all the other enterprises that depend on state government for funding. It’s also raising the cost of the goods and services government agencies buy. It’s not reasonable for such spending to stay flat through 2019.
Add inflation as measured by the Consumer Price Index back into the equation, and Tuesday’s forecast would have shown a deficit of nearly $200 million by mid-2019 and $900 million by mid-2021.
That reality should tamp down the exuberance heard yesterday both from those calling for significant tax cuts and those who favor more state spending. Small, targeted changes of both kinds are affordable this year. Big tax givebacks or spending surges are not.
With Republicans in charge of the Legislature, tax relief is bound to be part of this session’s output. With DFL Gov. Mark Dayton’s signature needed on bills, chances are good that those tax cuts won’t be budget-busters, and that education and health care will also see increases.
Dayton, who has said he will not seek a third term in 2018, has taken lately to emphasizing his pride in ending the chronic budget deficits that marked his predecessor’s terms. Here’s hoping that the many legislators who call themselves conservative will demonstrate that they share the DFL governor’s fiscal prudence.