Ready for another legislative session devoted to dispersing a $1-billion-plus surplus? Ready or not, that’s what appears to be on tap for Minnesota in 2016, judging from the strong preliminary state revenue totals scored for the fiscal year that ended on June 30.
Final tallies for both taxing and spending in fiscal 2015 won’t be available until October. But the early numbers look very good: Minnesota Management and Budget announced on July 10 that receipts for the 2015 fiscal year appear to be $555 million ahead of February’s forecast.
Add that to the $865 million in forecasted revenue for 2016-17 that legislators left uncommitted this year, and $1.42 billion appears to be available for the 2016 Legislature’s dispersal. That’s more than enough to inspire seekers of both tax cuts and new spending to rev up their lobbying machines well before March 8, when the next session convenes. Minnesotans can expect a barrage of arguments that begin: “With a $1.4 billion surplus, we ought to be able to afford [insert favorite cause here].” As citizens weigh those competing claims, they should know that:
• The $555 million gleaned in fiscal 2015 is likely one-time money, state finance officials say. It’s the bonus that flows into state coffers when the stock market does well, as it did in 2014. Minnesota’s progressive income tax — made more so in 2013 — and its treatment of capital gains as ordinary income makes this state’s revenue stream particularly responsive to fluctuations on Wall Street, up or down.
Proceeds from one strong market year are not dependably recurring revenues, and lawmakers should treat them accordingly. They should avoid using that source for recurring expenditures such as school and health care funding, or for a permanent tax cut. But one-time spending on, say, infrastructure betterment or a tax rebate would be a prudent choice. So would an increase in the state’s reserve fund — which, conveniently, is already in the offing:
• A third of the surplus is spoken for, or will be when the books are closed on fiscal 2015 and a new budget forecast is released in late November. A wise law enacted in 2014 prescribes that one-third of surpluses forecasted in November are automatically added to the state’s reserve fund until it reaches its target level of 5 percent of the biennial general fund budget.
The target is now $2.1 billion; the reserve sits at $1.35 billion, or $750 million below target. A $1.35 billion cushion is bigger than ever before. But in a state whose revenues are notoriously volatile, legislators should take the reserve target seriously. Some legislators undoubtedly will want to redirect the reserve to other purposes. Advocates for stability in state government — starting with Gov. Mark Dayton — should prepare to defend the reserve against raiding parties.
• Trouble lies ahead in the health care budget, with the funding source for MinnesotaCare, the 23-year-old health insurance program for the working poor, due to disappear in 2019. In coming months, a bipartisan task force will work to devise recommendations to stabilize that big portion of the state budget. Its recommendations may not include tapping the 2016-17 budget surplus — but if they do, that request will move to the head of the line of pleaders for state funds.
Other pleas for a share of the emerging surplus have merit. Transit funding needs a major boost. Cities and counties deserve more state aid. The state’s monthly grants for the lowest-income families are way overdue for an increase. We support dedicating the general fund’s vehicle rental and lease taxes to roads and transit — though we hold that a gas tax increase is also required to adequately meet transportation needs. A modest tax cut geared to low-income families is in order.
The late start planned for the 2016 session affords both legislators and citizens ample time to weigh those ideas and more. When they do, we think they’ll see what the 2015 Legislature discovered: A billion-dollar surplus isn’t as big as it sounds.