Ewald at the Capitol

Historic $7.7 Billion State Surplus Projected

As reported in December, the state has a $7.7 billion projected budget surplus. The $7.7 billion is in addition to $1.2 billion in federal COVID-19 relief funds directed to Minnesota that has yet to be designated for a specific purpose.

Much of the projected surplus is being attributed to robust growth in income, consumer spending, corporate profits, and a major influx of federal funds for Fiscal Year 2021. It is the largest budget surplus in Minnesota history. Also contributing to the surplus are slightly lower state spending estimates in education, health and human services and other areas.

With the Minnesota Legislature set to reconvene on January 31, 2022, expect to hear plenty of debate over how to spend the new funds and/or tax cuts.

Additional Surplus Projected in January

In addition to a $7.7 billion projected budget surplus announced in December, a quarterly review and economic update released in January by the Minnesota Department of Management and Budget showed the state tax collections continue well above forecasted levels. Earlier than expected tax payments have resulted in $362 million more in collections than was projected by state economists just two months ago.

While these revenues will not be added to the projected record surplus yet, they indicate that tax collections continue to come in higher than expected.

Rainy Day Fund Refilled

Minnesota's strong budget forecast triggers an allocation of the projected revenue surplus funds to the state's budget reserve, increasing the reserve balance to more than $2.6 billion.

Minnesota statutes require some of the surplus to be allocated to replenish certain state accounts such as $870 million for the state’s budget reserve (“Rainy Day Fund”) and $111 million for the U.S. Bank Stadium Reserve fund.

A healthy budget reserve is a key factor in determining the state’s bond rating and the interest rate the state will pay when issuing bonds for capital improvement projects.

June Accelerated Sales Tax Payments

Also triggered by the record budget surplus is the cancellation of the June accelerated sales tax shift for the 2022-2023 biennium.

In years with a budget shortfall, the June accelerated sales tax is a revenue shift that grabs money from tax collections that would normally be paid in July into June. This period is the transition between fiscal years, so this budget gimmick serves the purpose of balancing the current fiscal year budget by borrowing from the next year.

The recent surplus allowed Minnesota to finally remove the shift from state law for the 2022-2023 biennium at the price of $359 million. Many Minnesota businesses found it necessary to borrow money to make the June accelerated sales tax payment making this trigger a welcome outcome for businesses.

Retirements

The list of legislators announcing they will not seek reelection continues to grow, with eight legislators adding their names in January. Most notable January announcements include committee chairs such as:

Rep. Paul Marquart (DFL-Dilworth) – House Taxes Committee
Rep. Jim Davnie (DFL-Minneapolis) – House Education Finance Committee
Rep. Carlos Mariani (DFL-St Paul) – Public Safety and Criminal Justice Reform Finance and Policy Committee
Sen. Bill Ingebrigtsen (R-Alexandria) – Senate Environment and Natural Resources Finance Committee

As of Thursday, sixteen legislators have announced they will not be seeking reelection and an additional six legislators have announced they will be seeking election to another office in 2022.