State sees budget surplus, but money already spent

The state’s economic experts released a new budget forecast Wednesday that revealed the state has an additional $323 million available for the current budget cycle. This is another good sign that Minnesota’s economy may be starting to recover from the recession. The November 2011 forecast also showed a modest surplus, and unemployment figures released this week showed Minnesota is gaining jobs.

Unfortunately, poor budget decisions made in recent years are preventing the state from taking full advantage of the positive economic news. The state’s budget experts were reluctant to call this week’s $323 million find a “surplus” because all of the money is already, by law, dedicated to paying back schools the $2.7 billion still owed to them and restoring the state’s budget reserve account. The short-term fixes used to end last year’s government shutdown hang over the head of every Minnesotan and must be addressed before the state is fiscally sound once again.

The state owes Minnesota schools $2.7 billion in aid payments that were withheld to help balance previous budget deficits. By law, $318 million of the new “surplus” is required to begin paying back schools, but that still leaves a $2.4 billion outstanding balance. In the absence of this state funding, school districts around the state have been forced to borrow $600 million to keep schools running, meaning they’re racking up interest on their own debts. It’s going to take several years to remedy this situation.

This week’s economic forecast also predicted lawmakers will face a $1.1 billion budget deficit when they arrive next January, partially a result of the short-term solutions Republicans insisted upon to balance last year’s budget. The actual deficit grows to $2.1 billion when inflation is considered, which it should be – inflation is an inevitable reality that will add to the cost of services the state must provide. Lawmakers will need to address this looming deficit before moving forward with any new economic policies.

Between the school repayments and projected budget deficit, there’s still at least $4.5 billion on the state’s credit card that needs to be addressed before the state can take advantage of this or any future “surpluses.” Calling this week’s forecast a surplus is like someone saying they’re debt-free because they still have cash in their wallet after making the minimum payment on a maxed-out credit card. The cash is spoken for – for Minnesotans, a $4.5 billion bill still remains and must be paid if the state is to benefit from any signs of economic recovery.


Senator Rod Skoe
Rod Skoe represents District 2, which includes all or portions of Becker, Beltrami, Clearwater, Hubbard, Lake of the Woods, Mahnomen, Otter Tail and Wadena counties in the northwestern part of the state. He chairs the Tax Committee.

Read more news from Sen. Skoe.
Senator Rod Skoe on EmailSenator Rod Skoe on Flickr