Minnesota budget surplus grows to $1.23 billion

Minnesota's strengthening economic recovery has left the state with a budget surplus of $1.23 billion, a dramatic jump from just a few months ago.

The surplus is another sign of the strength of the state's economic recovery and will set off a new round of budget fights as Minnesota legislators figure out what to do with the windfall in an election year.

Minnesota Management and Budget Commissioner Jim Schowalter said the economy "continues to steam along," and he has an upbeat outlook.

"I don't want to get too much irrational exuberance here," he said earlier this week, "but things are going well."

Schowalter said the new, two-year federal budget deal has ushered in fresh confidence after years of repeated budget and debt ceiling showdowns in Washington.

"There is no budget crisis, and that helps people plan and understand where they are at," Schowalter said.

Budget watchers have seen hints of the good news as monthly tax revenue collections beat projections over the past few months. "I think that is one of the good economic indicators of the activity already going on," he said.

Minnesota has one of the lowest unemployment rates in the country, standing at 4.6 percent. The state created nearly 46,000 jobs in the past year, one of the fastest-growing states in the nation.

Legislators have been in session less than two weeks and are already figuring out ways to spend the money.

Leaders in the Minnesota House want to set aside at least $500 million for tax relief, which has to be booked as spending in state budgets. A coalition of Democrats and Republicans want to use a significant share of the money to bulk up the state's budget reserves to prepare for the next economic downturn. Many legislators want to use a share of the money to increase transportation spending, or even use it to pay cash for the multimillion-dollar State Capitol renovation.

"Our priority, number one, is the tax relief," said House Minority Leader Kurt Daudt, R-Crown. "What this shows is that Democrats have collected too much money from the taxpayers. Let's send it back."

Senate Majority Leader Tom Bakk supports some tax relief, but also wants to set aside money to build up the state's rainy day fund. He is concerned spending all the money now could cause problems in future years.