$323M surplus in economic forecast

The surplus will be used for reserves and paying back school districts.

by Luke Miller


On Wednesday, Minnesota Management and Budget released a bittersweet economic forecast for February.

The forecast balance turned out a $323 million budget surplus for the rest of the current biennium.

However, under current law, the entire surplus will be allocated to the budget reserve and a partial buyback of school aid shifts.

In a few weeks, the first $5 million will transfer directly into the budget reserve, bringing its total to $653 million.

The remaining $318 million will go to pay back K-12 education, from which the state borrowed money to balance the budget deficit.

“The news isn’t great, but the great news is, it isn’t bad,” said Rep. Phyllis Kahn, DFL-Minneapolis.

Of the surplus, $230 million came from less government spending than the November forecast projected.

This decrease came mainly in health and human services.  There were lower projected enrollments and fee-for-service costs in the Medical Assistance early expansion group, freeing up $108 million.

Aside from spending decreases, $93 million of the $323 million surplus came from more revenue than what was expected in the November projections.

In November, the state projected an $876 million surplus. By law, that money was used to fill the state’s reserve and cash flow account.

February’s forecast also included a decreased chance of a 2012 recession — from 40 percent to 25 percent.

Despite the positive reports, a tough road still lies ahead for legislators in St. Paul.

Even though the majority of the current budget surplus will be spent on paying back school payment shifts, the state will still owe $2.4 billion to school districts.

The forecast also showed planning estimates predict a $1.1 billion budget shortfall for the 2014-2015 budget cycle.

That estimate is down from the $1.3 billion projection in the November forecast.

Although challenges lie ahead, legislators agree things are moving in the right direction.

“This is a very positive sign,” said Speaker of the House Kurt Zellers, R-Maple Grove.

Senate Majority Leader David Senjem, R-Rochester, echoed Zellers comments, adding, “Let’s keep this going.”

Gov. Mark Dayton was more cautious than the Republican leadership.

“We still, however, are a long ways from getting out of our financial hole,” Dayton said. “We’re a long ways from being solvent, and we have the responsibility to continue on this course of becoming ever more so.”

Moving forward, the forecast should allow “legislators to breathe a sigh of relief,” said University Chief Financial Officer Richard Pfutzenreuter.

The surplus won’t directly affect the University’s share of a bonding bill, but it could encourage legislators to reconsider the amount of money they’re spending.

“It might even give some of those who want a higher bonding bill a little more breathing room,” said Sen. Kari Dziedzic, DFL-Minneapolis. “There are a lot of needs and if the interest rate is still low, now is a good time to invest in the future,”

Pfutzenreuter said that the good news is legislators won’t have to put more emphasis on cutting budgets.

“That’s good news for the University of Minnesota because it’ll allow our current budget planning for next fiscal year … to proceed as we’ve been planning it. And that’s good news for us.”