The Minnesota Senate will convene the 2014 Legislative Session on February 25 with the state in a much stronger financial position than a year ago. In spite of inheriting a $627 million deficit and an additional $801 million debt to schools, the legislature structurally balanced the budget last session with a combination of spending reductions and new revenue.
As a result of this structurally balanced budget and the state’s steady economic growth, early projections from the latest economic forecast indicate a budget surplus that will completely erase the remaining $246 million owed to schools and leave a remaining balance of $825 million. This positive balance is another encouraging indicator of Minnesota’s fiscal health, and if the projected surplus holds up through the next economic forecast in February, the 2014 legislature will need to consider how to best use those funds.
Although it is difficult to predict specific priorities for a potential surplus, the State Economist and other non-partisan financial experts have already called attention to the fact that Minnesota lacks an adequate budget reserve, or “rainy day fund,” to withstand future economic volatility. To that end, bolstering the budget reserve to reinforce Minnesota’s fiscal stability would be a likely priority for a portion of potential surplus funds. Additional possibilities include one-time investments that would not saddle future legislatures with ongoing financial commitments.
Governor Dayton has indicated a willingness to use surplus dollars to eliminate business-to-business tax changes made during the 2013 session and explore other tax reforms. While it is too early to commit projected dollars toward actual expenditures, the Senate will evaluate all options—including the Governor’s proposals—based on the more up-to-date February forecast to ensure Minnesota’s budget remains “in the black” heading into the next fiscal year.