Minnesota budget forecast reinforces need for restraint

Some Minnesotans were humming "Happy Days Are Here Again" Thursday after hearing word that state revenues will exceed expected expenditures by slightly more than $1 billion through June 30, 2017.

The tune we'd prefer they sing is "Take It Easy." Yes, the state is in the black for the foreseeable future. The 2015 Legislature will convene with no deficit on the biennial horizon for the first time in eight years. For that, both parties can take a bow. It took both GOP-backed spending restraint in 2011-12 and DFL-backed tax increases in 2013 to stabilize the state's finances.

But a spare $1 billion works out to about $350 million per year over three fiscal years, 2015-17. That's not much in a budget of about $20 billion per year. And the arithmetic that produces the $1 billion figure omits expected inflation in state spending — an omission dictated by an ill-advised 2002 state law. Add inflation, as honest forecasting would, and expected spending growth nearly swallows the entire $1 billion surplus.

Of course, the 2015 Legislature and DFL Gov. Mark Dayton are not stuck with either the expected expenditures or revenues for the 2016-17 budget. They have ample opportunity to make adjustments during the session that will convene Jan. 6.

But politicians and pleaders with appetites for either big spending initiatives or major tax cuts should find little encouragement in Thursday's forecast. It hews quite closely to the status quo.

That bottom line is a reflection of a state economy that has recovered nicely from the Great Recession but that remains less than optimal for too many Minnesotans. Though Minnesota continues to outperform the nation in median household incomes and employment, the state's economic trend lines track with those of the nation, and the nation's economic outlook has weakened this year.

Of particular concern is the trend line on wage growth. Wages aren't climbing as high or as rapidly as forecast 10 months ago, even though Minnesota's unemployment rate is fifth-lowest in the nation at 3.9 percent and the job vacancy rate has spiked in Greater Minnesota.

Those divergent theories are good grist for conversation but not for policymaking. The lag in wage gains is a serious threat to this state's continued recovery in the short-term and its quality of life in the long-term. Acquiring deeper understanding of its causes and a consensus about effective remedies is important work for state leaders in coming months.

While the forecast does not bind the 2015 state budget-setters, it should serve to narrow the range of their arguments. That may be a blessing, given that power will be divided between two parties in 2015. Chances for a budget showdown that would shut down services and damage the economy are reduced when lawmakers aren't obliged to close a deficit.

But Thursday's forecast does not address a politically divisive deficit of a different kind: in transportation infrastructure. Highway funding was not addressed in Thursday's general fund budget forecast. Leaders of both parties say they consider highway funding inadequate and acknowledge that the state lacks sufficient capacity to service more highway debt. But they disagree about whether a gas tax increase should be among the remedies. That's likely to be a sticking point next session.

Word that the state has a surplus — even in a fund unrelated to highways — won't make enactment of a gas tax increase any easier. In a political sense, the surplus sets a ceiling on taxing and spending in 2015.

Dayton gave Capitol reporters a glimpse of the spending wish list he hopes to present to the 2015 Legislature. It includes larger tax credits to reimburse families for child care expenses, more funds for broadband development in Greater Minnesota and richer preschool scholarships for children from low-income families.