Minnesota's budget surplus tops $2 billion in latest estimate

Minnesota lawmakers could return to the Capitol next year with an extra $2.4 billion to spend or sock away.

The last two-year budget cycle ended with a balance of $820 million, according to an update from Minnesota Management and Budget (MMB), after the state collected $739 million more in revenue and spent $81 million less than projected at the end of the legislative session this spring.

The state's budget office said that balance will be tacked on to the nearly $1.6 billion surplus already projected for the current budget, which runs through June 2025. Lawmakers won't get precise numbers on the surplus until December.

"Minnesota's economy has endured a lot and has emerged in a good financial situation," said State Economist Laura Kalambokidis. What's more, budget forecasts might be moving away from the wild swings experienced during the pandemic, she said.

"We've seen enough of these negative shocks to know that there are still more risks on the horizon — issues in Washington, oil prices, continued geopolitical conflict," Kalambokidis said. "All that said, given the extreme swings of the last few years, it feels like we're in a more normal level of uncertainty."

The $2.4 billion on the bottom line is a small fraction of the current $72 billion two-year state budget, but that number is more in line with how budgets fluctuated before the pandemic.

In February 2020, one month before the pandemic's start, state budget officials projected a $1.5 billion surplus. That number dropped to a $2.4 billion deficit by May 2020, which then became a $636 million surplus by December 2020. Fast forward to this spring, when lawmakers had a $17.5 billion budget surplus on the bottom line.

Still, the extra money adds up and could give DFLers in control of state government more flexibility heading into an even-year session typically dominated by debate over a package of construction projects.

This spring, Democrats passed a sweeping list of progressive policy priorities and the largest-two year budget in state history. Many of those policies on child care and housing are just starting to roll out and will take time to be felt by Minnesotans, said DFL House Speaker Melissa Hortman.

"We have to give this budget a chance to be more fully enacted and realized," she said, adding that she expects a modest supplemental budget bill to be considered next year that could invest more in areas like pensions and agriculture. "The major work will be the bonding bill."

DFL Senate Majority Leader Kari Dziedzic said the surplus could go toward additional bonding projects and help with deferred maintenance for parks and trails, buildings on college campuses and public housing, among other facilities. Senators have also heard from constituents that there's more to do to lower child-care costs and address the workforce shortage.

Those two issues "are so connected," Dziedzic said. "If they can find [child care], it's still very expensive, so I think we still need to look to that, because if you can't find child care you're not going to work."

Republican Senate Minority Leader Mark Johnson said the state continues to over-collect from Minnesotans and extra cash should be used for permanent tax relief. "While it's not surprising Democrats are talking about spending all this money, it's a complete disservice to the taxpayers struggling to make ends meet," he said.

Money could also be added to the state's reserve account, which currently sits at nearly $2.9 billion. The state also has a rainy day cash flow balance of $350 million.