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Minnesota reports state budget surplus, but with federal uncertainty

House minority leader-elect Melissa Hortman of Brooklyn Park looks on Friday, Dec. 2, 2016, as Senate Majority Leader Tom Bakk of Cook praises Democratic Gov. Mark for how he has managed the state budget. (Forum News Service photo by Don Davis)1 / 4
Minnesota House Speaker Kurt Daudt of Crown talks about economic uncertainty on Friday, Dec. 2, 2016, as he and Senate majority leader-elect Paul Gazelka of Nisswa react to a budget report. (Forum News Service photo by Don Davis)2 / 4
Minnesota Gov. Mark Dayton tells reporters Friday, Dec. 2, 2016, that a $1.4 billion expected surplus is better than the $6 billion deficit he faced when he took office in 2011. (Forum News Service photo by Don Davis)3 / 4
Commissioner Myron Frans of Minnesota Management and Budget leaves through paperwork on Friday, Dec. 2, 2016, as state officials announce a budget surplus. (Forum News Service photo by Don Davis)4 / 4

What happens in Washington doesn't stay in Washington.

A new president and a stronger Republican Congress are expected to make major changes in the federal budget, which Minnesota state budget writers said on Friday, Dec. 2, will affect their work. But they do not know how.

"There is probably more than the usual range of uncertainty here," said Chairman Jim Knoblach, R-St. Cloud, of the House Ways and Means Committee as state officials reacted to news of a projected $1.4 billion budget surplus.

Less than five hours after the surplus news broke, another type of uncertainty surfaced over the budget when the governor and legislative leaders announced they are near a deal to call the Legislature into special session later this month to pass bills providing aid to some people paying higher health insurance premiums, funding public works projects and making tax changes. If a session is called and the bills pass, those changes could cut the surplus in half. Gov. Mark Dayton and other state officials said they need to proceed with caution since they do not know how the state will be affected by actions taken by president-elect Donald Trump and the new Republican congressional majority.

For instance, the new GOP-controlled federal government likely will make health-care law changes, but how that affects programs mostly run by the state while using federal funds is not known. The same goes for any number of other issues. Knobloch said the state has funds set aside in case federal changes could cost the state. "We have a budget reserve to deal with those sort of things." There was unease with setting a state budget before federal changes are known. "This is not going to be easy," House Speaker Kurt Daudt, R-Crown, said. "We are going to have to have triage." Daudt said that Minnesota leaders must start working on the health care issue before Trump and Congress figure out their plan. Daudt suggested that insurance premium relief for Minnesotans must pass the state Legislature by April. "The federal government is going to do something," he said. "It likely will not happen in time for us to make serious decisions. ... Hopefully, they can show us their cards a little bit." Senate majority leader-elect Paul Gazelka, R-Nisswa, said the Washington change "is a complete overturn of where we were." The comments came shortly after policymakers learned they should have a $1.4 billion available, if nothing changes before the regular session starts Jan. 3, when they start to draw up a two-year state budget. "Minnesota's budget and economic outlook remain stable, despite continued slow economic growth," Minnesota Management and Budget reported. "Lower forecast revenue projections are partially offset by reduced spending estimates." Problems in the agriculture and mining industries were about the only negative notes sounded in the Friday report. Recovery in both sectors depends in a large part on Washington. Democrat Dayton said taconite mining in northeastern Minnesota already is hiring back employees who had been laid off.

He said that low commodity prices on the farm are out of state government's hands. But, he added, state leaders can help improve the renewable energy industry that mainly helps corn and soybean farmers. Also, Dayton said, farm property tax changes may help farmers. Property taxes continued to rise as prices dropped, he said, making it tough to balance the books. However, State Economist Laura Kalambokidis said that during recent good years farmers bought implements and and made other purchases to keep up to date, which reduces pressure to spend during current bad times. Overall, the state economy looks a lot like the national economy, Commissioner Myron Frans of Minnesota Management and Budget said: Growing, but at a slower pace than many want. "I would describe it as kind of a status quo forecast," Senate Majority Leader Tom Bakk, D-Cook, said. The current two-year budget is expected to end on June 30 with a $678 million balance. The new revenues from the growing economy and lower spending for the next two years would produce the $1.4 billion surplus. However, there will be demands on the money, such as calls for higher spending in many areas and a push for tax cuts. Dayton will use the figures released Friday to draw up a budget plan he must present to lawmakers next month. An updated budget report later in February will allow Dayton to tweak his proposal with the latest information. His revised budget plan and newest economic report will form the basis for the Republican-controlled Legislature to write its version of a two-year budget. The current budget is about $42 billion. For the next two years, state taxes are expected to be down $467 million from early projections. Sales tax revenues are the biggest loser, $428 million, with property taxes expected to be down $36 million and corporate taxes should fall $4 million. ---- Highlights of Friday's Minnesota budget report for the next two years: -- Tax receipts are expected to fall $467 million from earlier estimates. -- State spending should drop $152 million. -- Looking out through 2021, the state should keep a budget surplus. -- Minnesota wages should continue to grow about 4 percent to 5 percent a year.

Don Davis
Don Davis has been the Forum Communications Minnesota Capitol Bureau chief since 2001, covering state government and politics for two dozen newspapers in the state. Don also blogs at Capital Chatter on Areavoices.
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