Projected surplus grows to $1.2 billion

ST. PAUL (AP) – A bullish budget forecast showing a $1.233 billion surplus added steam Friday to a bipartisan push for tax relief, but also sparked a “bidding war” over how much taxpayers will get back.

Money available for lawmakers to disperse grew by 50 percent from the last forecast a few months ago, according to a much-anticipated report by the Department of Minnesota Management and Budget. It’s the last one to be provided before November’s election, and will guide session decisions.

Majority House Democrats immediately ratcheted up calls for swift passage of a $500 million package of tax cuts and repeals in this election-year session, a position also embraced by Democratic Gov. Mark Dayton.

“There’s enough room there for a very significant tax cut,” Dayton said in a conference call with reporters. He added, “this is going to get into a tax cut bidding war and everyone is going to try to top everyone else.”

Meanwhile, Republicans, who are a minority in both chambers, launched a bumper-sticker ready “Give It Back” campaign that calls for returning the full amount to taxpayers. They invited people to suggest the best method for a rebate.

District 16 Sen. Gary Dahms, R-Redwood Falls, cited a number of things he would like to see the state do with the projected surplus, besides paying the schools back from previous funding shifts, which is a requirement. He said some money should go toward a reduction of taxes that hit middle income families, and he would like to see some go to the 5% Campaign – a grassroots effort aimed at getting raises for long-term care workers.

“Anytime you have a surplus in the state of Minnesota, that’s a good thing,” he said.

Dahms also would like to see some money funneled to transportation – somewhere in the neighborhood of $400 million to $500 million – since getting a long-term commitment to a funding stream for roads and bridges can be difficult.

“We need to start addressing roads and bridges,” he said. “We’ve talked about the gas tax to help with funding, but there are issues with that. Until we get something long-term I would like to see these one-time monies get plugged in there.”

Dahms said the surplus is a result of Minnesotans being overtaxed in the past. He, like his fellow Republicans, say the state should give it back to the residents in various ways.

One wild card remains: Where Senate Democratic leaders land in the tax cut debate. The Senate, unlike Dayton and House legislators, isn’t on the fall ballot, and hasn’t committed to anything. Senate Majority Leader Tom Bakk said Dayton’s hope of signing a bill into law by March 14 is a “pretty aggressive timeline” that he thinks will be difficult to achieve.

Bakk favors using a chunk of the surplus to bolster the state’s rainy day reserves. House Speaker Paul Thissen differed on that score. “To keep this middle-class economic recovery going, now is not the time to keep stuffing cash under the mattress,” Thissen said.

Dayton said he supports adding to the reserves, but didn’t say how much.

The House could vote as soon as Thursday on a plan to free businesses from new sales taxes imposed just last spring and give income tax filers more deductions and exemptions. Some of the cuts would be retroactive, meaning filers could claim them when submitting returns this spring.

The forecast represents an estimate of current and future tax collections compared with spending commitments through June 2015. In releasing it, state finance officials said the surplus is $408 million higher than what they projected in early December. That report showed $825 million was left after the state paid off final IOUs to schools that amassed during deficit times.

“Our economy is certainly warmer than our weather,” Minnesota Management and Budget Commissioner Jim Schowalter said Friday, yet another frigid winter day. “This forecast does suggest that we’re in solid shape for the rest of this budget period. But what it doesn’t do is ensure that future.”

Minnesota has its lowest unemployment rate in more than six years – 4.6 percent – and added thousands of jobs last year. The housing sector is picking up as demand grows and foreclosures wane. Income growth has risen at a modest pace, feeding robust tax collections.

State Economist Laura Kalambokidis said those dramatically higher tax collections probably won’t persist because some stemmed from accelerated payments.

Officials with Minnesota Management and Budget said a combination of stronger revenue and lower-than-anticipated spending fed the surplus. The state budget for two years is still pegged at $39 billion, but some areas saw less demand for dollars than lawmakers who set the budget planned.

Looking to the horizon for fiscal years 2016-17, the surplus for the next two-year budget is even bigger at $2.6 billion. But those longer-range estimates can change quickly and don’t account for natural inflationary growth that would slice the projection by more than $1.1 billion.