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What can be done with the $1.5 billion surplus in Minnesota

ST. PAUL, MN — There’s a $1.5-billion budget battle amongst lawmakers at the state Capitol.

“We took too much money from the hardworking people of Minnesota. We should give a lot of it back,” said Sen. Justin Eichorn – R, Grand Rapids.

“That’s not really a surplus, because we don’t adjust our spending for inflation,” said Rep. Jennifer Schultz – DFL, Duluth.

Here’s what Minnesota is looking at. In the next two years, the state’s budget is expected to be $48-billion.

The projected surplus of $1.5-billion is about 3% of the state’s budget. Democrats say the projection is misleading.

“When you look at inflation, at what is actually real money, and what’s not, there’s probably about $400-million or $500-million that we can spend there in one-time monies. One-time meaning this biennium,” said Sen. Erik Simonson – DFL, Duluth.

That’s why Democrats and Republicans disagree on how to handle it.

Republicans think Minnesotans should see some tax cuts, Democrats are saying to pump the brakes.

“We should do some long-term tax relief for individuals that’s really directed at individuals, not corporations, or the wealthy. Just the average Minnesotan,” said Eichorn.

“We’ve been sort of chipping away at, for instance, the income tax on social security. We don’t think our seniors in Minnesota should have to pay income tax to the federal government and to Minnesota on Social Security. So, we’d like to eliminate that,” said Rep. Sandy Layman – R, Grand Rapids.

Democrats say hold tight, some experts predict $1.2-billion in inflation on the state’s anticipated spending.

“We have to be very fiscally conservative going forward,” said Schultz.

A provider tax that funds medical assistance programs for low-income Minnesotans is set to sunset this year. Schult says it that’s the case, it could send the state over a fiscal cliff.

“That’s going to leave over a billion dollar hole in our budget, because that provider tax not only pays for Minnesota Care, it pays for Medicaid, our medical assistance program,” said Schultz.

“We have to be careful about not committing the state to something that’s going to put us in a deficit in a future biennium,” said Simonson.

Democrats say if their forecasts of a reduced surplus are correct, whatever is left over will be put to good use.

“A number of those initiatives are going to circle around health care and education,” said Simonson.

One thing is clear, and that is lawmakers, and Gov. Walz must come up with a solution for the surplus, and pass a balanced budget, according to the state’s Constitution. Minnesota runs on a biennial basis, which means if they pass a balanced budget in 2019, they can tweak it in 2020 to ensure it stays balanced.

If they do not pass a budget in 2019, that will lead to a state government shutdown.

Most of the surplus is one-time money, meaning it’s not coming from ongoing change, but instead, it is coming from tax revenues coming in higher than expected, and/or certain programs not costing as much as they had projected to.

Spending was also down during the recent surge in the economy. Additionally, in May, former Governor Mark Dayton vetoed a Republican tax-bill after several disagreements in policy and priorities.

The veto of that tax bill also meant Minnesota did not pass tax-conformity, a complex process to bring Minnesota’s tax codes in line with federal tax code changes passed in 2017.

Tax conformity is a high priority for Minnesota lawmakers in 2019.

With 5 months to come up with a solution, more clarity should come with the fiscal forecast in February.

Republicans have pitched the idea of using the surplus to fund road repair statewide, instead of instituting a ten cent gas tax, like Gov. Walz is proposing to do.

That could happen, however, it’s not likely as the funding for roads is separate from the state’s budget.

Additionally, Democrats don’t think $1.5-billion would be enough to tackle all the road repair needed statewide.

One of the last times Minnesota was faced with a projected surplus around this size, then-governor Jesse Ventura issued rebate checks to Minnesotans spread out over three years.

The average “Jesse check”, as they were dubbed, was $650 in 1999, $317 in 2000, and $396 in 2001.

Democrats say that set up nearly a decade of deficits and fiscal instability.

The state also has the option to “bank” the surplus and put it in the budget reserve, known as the rainy day fund.

There is currently $2-billion in the budget reserve.

Reporter Anthony Matt

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