Professor and State Economist Laura Kalambokidis comments on Minnesota's Expected Budget Surplus

Hours after a budget forecast was released Friday, Minnesota Gov. Mark Dayton and legislative leaders emerged from private talks to say they are nearing an agreement on a special session later this month.

State government has sufficient funds in the near term to offer meaningful rebates to individual health insurance shoppers being socked by big premium hikes. It also can afford modest recurring tax relief for small businesses and farmers, and a respectable bonding bill that authorizes borrowing — but little or no cash — for public building projects.

That’s how we read the new state revenue forecast issued Friday. In a rare display of harmony, that’s how DFL Gov. Mark Dayton and legislative leaders of both parties saw it, too. Hours after the forecast was released, they emerged from private talks to say they are nearing an agreement on a special session later this month to address those three agenda items. Their talks will continue next week.

Minnesotans should root for lawmakers to wrap up a deal. But they should understand that a special session will take a sizable bite out of funds available for new spending or tax cuts in coming years. The forecast may have signaled a green light for a special session, but it’s flashing cautionary yellow for the 2017 regular session’s budget work.

Uncertainty was a big theme as state finance officials announced that $678 million remains on the general fund bottom line through next June 30, and that the two-year budget period that follows is on track to see a $1.4 billion surplus. Both of those numbers are smaller than were forecast last February. The latter number is derived without including inflation on the spending side of the ledger. Factor it in, and all but $72 million of the surplus vanishes.

State officials always say that unexpected events or changed circumstances could alter their forecasts. This time, those warnings were especially strong. State economist Laura Kalambokidis said uncertainty about federal policy under the new Trump administration, particularly concerning health care, is clouding economists’ crystal balls. Moreover, the post-Great Recession expansion is now “mature” and in its eighth year. It’s due to sputter.

But no downturn is visible in the new forecast’s horizon. Neither does it foresee any red ink for state government through 2021. If that holds, it will be a remarkable achievement for a government whose mix of income, sales and other taxes is notorious for volatility.

Dayton takes justified pride in the state’s good fiscal health. He vowed Friday to safeguard it. Legislative leaders also voiced awareness of the value of fiscal prudence. But legislators in both parties also spoke of a desire to use the surplus to improve the lot of low- and middle-income families. That’s a worthy aim. But lawmakers should keep in mind that those same families suffer disproportionately when the state falls into deficit and public services are pared back. Keeping the state budget stable serves average Minnesota families well.

For caution’s sake, lawmakers should think twice about blocking an automatic transfer of $334 million to the state’s reserve fund that the Friday forecast triggers. Dayton and some legislators have said they’d like to claw back that money and spend it on health insurance rebates. But the state’s Health Care Access Fund is also available for that purpose.

For the first time, state government is on the verge of having a reserve fund of $2 billion, the sum economists have long recommended as a suitable shield against economic storms. It’s not stormy now. But conditions are unsettled enough to warrant building the reserve to full strength.

Original article