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Minnesota’s Budget Surplus Increases, Providing Legislature with More Breathing Room

ST. PAUL, Minn. (AP) ÔÇö MinnesotaÔÇÖs budget outlook has improved thanks to higher corporate profits, officials said Thursday as they projected a slightly bigger surplus that will give the Legislature a little bit more breathing room this session.

Minnesota Management and Budget said the current two-year budget period, which runs through June 2025, is now expected to end with a surplus of just over $3.7 billion. ThatÔÇÖs up more than $1.3 billion from the last forecast, which was released in December. That compares with an overall budget of $72 billion, which was set last year.

ÔÇ£Our forecast is good news. Our economy is humming along,ÔÇØ Democratic Gov. Tim Walz said at a briefing for reporters. ÔÇ£We made critical investments in our budget last year to grow our economy, lower costs for middle class families, from tax cuts to free school meals, to investments in our workforce and career and technical education.ÔÇØ

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The budget office is also forecasting a smaller ÔÇ£structural imbalanceÔÇØ for the next two-year budget, which begins in July 2025. If lawmakers spend the entire $3.7 billion surplus, the next budget would start out with a $1.5 billion deficit instead of dipping $2.3 billion into the red as previously forecast. Republican leaders said they still consider that a deficit. But if the entire surplus is left in the bank, the next budget would start out $2.2 billion in the black.

ÔÇ£In order to protect the investments that were made in programs that serve Minnesotans, it will be important that policymakers exercise caution in enacting additional ongoing spending this legislative session,ÔÇØ Budget Commissioner Erin Campbell told reporters.

Proposed Supplemental Budget Without Tax Increases

The governor said he plans to issue his supplemental budget proposal in a couple weeks. He said it wonÔÇÖt include tax increases.

Democratic House Speaker Melissa Hortman, of Brooklyn Park, said she had already received ÔÇ£a few texts from people asking for things.ÔÇØ But she and other leaders made clear that they donÔÇÖt plan on much extra spending.

ÔÇ£TodayÔÇÖs improved budget forecast shows that Democratic leadership continues to have Minnesota on the right path,ÔÇØ Hortman said at the press conference. She went on to say, ÔÇ£I do not foresee making any commitments to spending that we canÔÇÖt pay for.ÔÇØ

Increased Borrowing Capacity for Public Infrastructure

But thereÔÇÖs one place for growth. The improved forecast means that the state can borrow more money for a public infrastructure package known as a bonding bill. State debt guidelines now allow the state to borrow $980 million for the bill, up from $830 million in the previous forecast, because interest rates are slightly lower, Campbell said.

Walz said that means there will probably be enough money to add more local projects to the bill, as some lawmakers have urged, but that heÔÇÖll leave those decisions to the Legislature.

Focus on Maintaining Existing Infrastructure

The governor proposed a combination of $982 million in borrowing and cash in January. The final package is still expected to have an unglamorous focus on maintaining the stateÔÇÖs existing infrastructure, like roads, bridges and water treatment facilities. It will require at least some Republican votes to reach the 60% majorities in both chambers that are needed when the state takes on more debt.

The budget office said the main reason for the improved outlook is higher tax collections due to higher-than-expected corporate profits, while spending projections have barely changed. The stateÔÇÖs labor shortage isnÔÇÖt quite as tight as it was. Unemployment remains low but is expected to rise slightly.

Republican Criticism and Call for Responsible Spending

Republican leaders said the state would be in much better shape if the Democratic majority had not spent the entire $17 billion surplus that the state had going into the 2023 legislative session.

ÔÇ£ItÔÇÖs time to cut spending and budget responsibly instead of trying to maintain the reckless spending from last session,ÔÇØ said House Minority Leader Lisa Demuth, a Republican of Cold Spring, at the press conference. ÔÇ£Family budgets and small businesses need meaningful tax relief now. And thatÔÇÖs what Republicans are asking for.ÔÇØ

Copyright 2024 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission.

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