REGIONAL – A state forecast predicting a $1 billion budget surplus provides evidence that Minnesota is on the right track, according to Minnesota Gov. Mark Dayton.

During a teleconference on Thursday, Dec. 4, Dayton told journalists that the forecast “shows that our state economy continues to be strong and growing.”

“In fact, we lead the nation in many important respects,” the governor continued. “We have the fifth lowest unemployment of any state in the nation and our real GDP (Gross Domestic Product) increase in 2013 was 2.8 percent, a full percent higher than the national average.”

Dayton said he would like to use a portion of the surplus to expand tax credits for child care. He will likely propose an additional $175 million over the next biennium, which would help as many as 170,000 Minnesotans with the cost of child care.

Other priorities listed by the governor include boosting broadband Internet access in Minnesota, securing state funding for early childhood education and investments in the state’s roads and bridges.

Dayton said all three initiatives are aimed in part at helping rural Minnesota. The broadband initiative, which received $20 million in the last legislative session, is designed to reach the “under-served and unserved areas which are almost entirely in greater Minnesota.”

The child care funding, including scholarships for Early Childhood and Family Education, is aimed at “spreading those programs more rapidly in greater Minnesota than has been the case so far.” And, he added, certainly a share of the transportation dollars will be going to communities and counties in greater Minnesota.

The surplus will also strengthen Minnesota’s budget reserve. A new law approved in 2014 directs that 33 percent of any forecast balance for the current biennium must be deposited in the budget reserve until recommended levels are reached. The $183 million deposit will increase the general fund reserves to $1.34 billion and further strengthen Minnesota’s fiscal stability, said Dayton.

Dayton noted that the budget forecast, while good news, is still not enough to meet all of Minnesota’s needs. Roughly $2.7 billion in requests for more funding for everything from nursing homes to infrastructure improvements have poured in.

Senate Majority Leader Tom Bakk also urged caution.

“Everybody who has ideas to spend what seems like an incredible amount of money should maybe temper their expectations a little bit,” Bakk said. “A billion dollars is a pretty small cushion.”

Bakk noted that inflationary pressures could consume much of the $1 billion surplus, an assessment shared by Minnesota Management and Budget Commissioner James Schowalter. Schowalter estimated that inflation could devour as much as two-thirds of the surplus.

Republican leaders downplayed the significance of the surplus and warned that the economy is still struggling.

“We know that Minnesota families really haven’t seen the sort of economic benefit or surplus in their own family budgets, and this is something that’s really concerning,” said Rep. Kurt Daudt, R-Crown, who will become House Speaker in January.

Creation of the surplus

The forecast released last week shows revenues for 2016-17 at $41.8 billion, a six-percent increase over the current biennium. The spending projection is $41.2 billion. A $373 million ending balance for fiscal year 2015 is added to the total, which results in the $1.037 billion balance.

State spending is down primarily in human services. Schowalter attributed that decrease to two factors. First was the lower cost for services for people in programs due to negotiations between the Department of Human Services and providers.

In the next biennium, Schowalter said a different composition of enrollees receiving medical assistance will result in more than $440 million in savings in health and human services.

Though the number of enrollees in medical assistance grew slightly from the February forecast, he noted, the increase has been largely adults without children, while the rate of families with children and individuals with disabilities fell during that time.

The reduction in state spending will offset projections of reduced tax revenues, included in the February forecast, Schowalter added.