Gov. Tim Walz was so upbeat at Friday’s February budget forecast announcement he said he was wearing his corn dog socks thinking about brighter months ahead. Now that the latest numbers project a $1.6 billion surplus despite the pandemic, the partisan wrangling on how it should be handled begins.
Tax collections in January were 14 percent higher than forecasted by state economists, a total of nearly $300 million higher, marking the third straight month that collections exceeded predictions and foreshadowing that the state hasn’t lost as much revenue during the pandemic as feared.
Before the pandemic, the state had a $1.5 billion budget surplus. In May that became a $2.4 billion deficit, then in November a $640 million surplus again before today’s February forecast.
Management and Budget Commissioner Jim Schowalter said the state weathered a tumultuous year.
“I feel like we’ve been on a year-long rollercoaster,” he said.
Schowalter and State economist Laura Kalambokidis said the numbers show “a stronger growth pattern ahead,” but said a lot based on “anticipated federal pandemic response.” They added that future stability depends greatly on the course of the pandemic and that the state is not back to where it was one year ago.
“Our forecast improvement is primarily based on one-time news,” Schowalter said. “With revenues showing growth and spending reflected without inflation we know that we still have difficult choices ahead, even as this is good news and puts us in a better position than we were yesterday.”
“There is uncertainty about when consumers will feel safe enough to return to more normal spending on services and how much of the expected federal fiscal stimulus they will spend and how much they will save,” Kalambokidis said. “This forecast depends on business owners having enough confidence in the recovery to continue investing in their businesses. A setback in business investment would slow growth.”
Walz’s budget plan, which he announced last month, includes higher taxes on the wealthiest Minnesotans with a new highest tax bracket, and large corporations. A focus is on education spending with a 1% increase for K-12 in 2021-22 and a 2.5% increase the following year, in addition to payments for districts that lost enrollment during the pandemic.
Friday’s numbers will inform any adjustments to the proposed budget. After that and through May the legislature will debate and approve a final balanced budget as required by law .
“With our new numbers coming up, what I can tell you is my commitment to a fair, progressive taxation system is still there but I am more than willing for us to find some compromises that work,” Walz said.
Republicans are opposing any tax hikes and want to see direct support for small businesses. Those in the House are proposing not taxing PPP loans or unemployment insurance checks as well as excluding tipped income from taxes.
“We clearly have the resources needed to pass our next budget without even touching our budget reserve,” Representative Anne Neu Brindley said. “This is good news. We should use this surplus to help businesses and families that have been harmed by the governor’s shutdown.”
Walz said he would be open to discussing the PPP exemption to conform to federal law but also wants Republicans to rethink cuts.
“If you’re not willing to compromise, you shut everything down,” Walz said. “That’s not the way this is supposed to work. I do worry that the all-or-nothing, demonize-the-other-side, they-are-the-enemy, they don’t agree with anything we do, and I’ve got to fight this to the death because otherwise I’m going to have to go face my voter constituency in my base that asks me, ‘Why did you compromise with the other side?’ I’m going to have to try to bring them together.”
