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MN budget forecast swings to $1.6B surplus from $1.3B deficit

The $2.9 billion improvement is based on a higher revenue forecast, lower projected state spending and an increased surplus for the current fiscal year.

ST PAUL, Minn. — If the era of COVID-19 has proven anything, it's that the world is dynamic and things can change in a hurry. 

That is certainly true when it comes to Minnesota's budget outlook, which state economists say has swung from an anticipated a $1.3 billion deficit to a $1.6 billion surplus in a matter of months. 

The projections released Friday will set up debates for the rest of the legislative session over taxes and spending. 

Minnesota Management and Budget (MMB) says projections have improved due to an improved U.S. economic outlook, which has been bolstered by stimulus measures the federal government has taken since the state agency issued its last forecast in November. 

"This improvement is directly related to federal pandemic relief that has emerged since the last forecast," said Commissioner of MMB Jim Schowalter during a news conference on Friday. "The impact of these bills has raised the revenue forecast and lowered the spending estimates that we anticipated for the budget period."

Though Schowalter called this surplus "very good news," he noted that since the bulk of it is from one-time resources, it must be "managed appropriately."

RELATED: Updated Minnesota budget forecast shows projected improvements

The agency also cites a higher revenue forecast, lower projected state spending and an increased surplus for the current fiscal year, which ends June 30.

State Economist Laura Kalambokidis stressed during Friday's news conference that the impact of the forecast relies "critically" on the path of the COVID-19 pandemic, including the emergence of any variants and the continued progress of vaccinations. 

She said that it will also depend on when consumer spending returns to pre-pandemic levels, as well as potential future federal relief, such as the stimulus package being currently considered by Congress.

"While our economic consultants see a stronger growth pattern ahead, we know a lot of this is based upon anticipated federal pandemic response," Schowalter added. "That money's not in the bank."

On Friday, Governor Tim Walz echoed Showalter's sentiment that this surplus is "good news," and said there is "every reason to be optimistic about the future."

However, he also acknowledged that the pandemic has not hit everyone equally, and admitted that this surplus may not change the situations of many, such as hospitality industry workers who have been laid off or small businesses that closed due to COVID restrictions.

"We need to come out of this stronger than we were, we need to recognize that we need to invest in places that were hit the hardest," Walz said. "Making sure those particular businesses are targeted that hurt the most, because some did incredibly well. And then making sure that those families that were asked to go through this are brought back. And now it looks like that we have the capacity to be able to do that."

Republican lawmakers welcome the revised numbers, but also express caution in how the legislature moves ahead. 

"Minnesota's economy is bouncing back, and will continue growing if we let it," said House Minority Leader Kurt Daudt (R-Crown) in a released statement. "Unfortunately, Democrats will continue pushing for completely unnecessary tax hikes that would hurt struggling businesses and families. Raising taxes will slow our economic comeback, and make it harder to bring back jobs and paychecks to where they were before the pandemic."

"We know the Governor's tax hikes will not become law this year, and we can save ourselves weeks of headaches if the Governor and Democrats acknowledge that now. We’re ready to roll up our sleeves and work together to pass a responsible budget without raising taxes."

 

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