Budget Forecast: State budget officials announced the largest surplus in Minnesota history
Governor Walz and top lawmakers held a news conference Tuesday morning to provide their reaction to the projected $7.746 billion state budget surplus forecast announced yesterday by Minnesota Management and Budget (MMB). The large surplus sets a state record and does not include either the unappropriated federal funds or the remaining COVID-19 flexible response account dollars.
The November forecast is the first budget forecast since the June special legislative session and reflects the various spending and tax changes included in the FY 22-23 budget. A second budget forecast, generally released in late February, will guide the Minnesota Legislature during the 2022 legislative session.
- The $7.7 billion figure includes: a $3.1 billion rollover from fiscal year 2021; $127 million that remained unspent at the end of the 2021 legislative session; and $5.5 billion that is forecast to be gained from now until the current fiscal biennium ends in June 2023.
- State statutes require some of the surplus be allocated to replenish certain state accounts, including $870 million for the state’s budget reserve and $111 million for the U.S. Bank Stadium Reserve fund. Those funds are also factored into the $7.7 billion total.
MMB indicated most of the budget surplus is due to a $5.1B increase in revenue and $364 million decrease in projected spending. Growth in income, consumer spending and corporate profits drove much of the revenue increase.
The budget surplus is partly due to strong wage growth (leading to more income tax collection).
- Minnesota wages and salaries now projected to grow at 8.5% in 2021 and 7.3% in 2022, the strongest in many years.
- Minnesota now has 6 unemployed workers for every 10 job openings (205,000 vacancies across the state).
- For workers, inflation is eating up most of this year's wage gains
This forecast sets the stage for lawmakers to begin the debate, that will last through the end of the next legislative session and into the election, on how to spend the surplus. The DFL said the money gives the state the opportunity to invest in programs that help those who haven’t benefited from the economic recovery: child care affordability, health care costs, education boosts for those who fell behind, paid family leave. The GOP said money should relieve the tax burden on families, help them pay energy costs and deal with inflation while pledging to not act to grow state government.
Minnesota's forecasting firm, IHS Markit, projects inflation settles back to the 2% range by 2023. But this depends on an easing of supply chain disruptions and a leveling-out of the labor force.
The forecast also acknowledges uncertainty surrounding the COVID-19 pandemic, saying it poses a “significant risk” to the projected surplus.
The February budget forecast will be the next benchmark to watch for, as in previous cycles, the two forecasts typically differ and the legislature will wait for this forecast to determine what actions they take to address the surplus.
For more information and a copy of the MMB documents, click here.
Please reach out to any of the Larkin Hoffman Government Relations team members with any questions.