(Story updated at 2:05 p.m.)
Fueled by “extraordinary growth” in income, consumer spending and business profits, Minnesota is expected to have a budget surplus of $7.7 billion for the 2022-23 biennium.
This news was shared Tuesday by Minnesota Management and Budget as part of its November 2021 budget and economic forecast.
The second of two annual economic estimates the state uses to inform fiscal and policy decisions, the November forecast continued the upbeat outlook predicted in the February 2021 fiscal and economic forecast that projected a $1.6 billion surplus. .
“This is great news for Minnesotans today…it’s crystal clear our economy is strong and growing,” Governor Tim Walz said at a press briefing by officials. of State.
[WATCH >> Gov. Walz responds to latest budget forecast]
He called the projected surplus a “remarkable opportunity” to improve the economic situation of all Minnesotans. Walz said he’s focused on cutting costs for people “on the things that impact their lives,” as well as investing in middle class and working families, and helping to those who are in difficulty.
House Majority Leader Ryan Winkler (DFL-Golden Valley) echoed the governor’s comments and expressed support for efforts to pass paid sick leave for all, higher wages for essential workers and improved education and health care across the state. He said the House would not cut taxes for “big business and the rich” at the expense of the less fortunate.
“When we help workers, families and small businesses thrive, they grow our economy,” Winkler said in a statement.
House Minority Leader Kurt Daudt (R-Crown) also said the latest forecast presents lawmakers with an opportunity to act.
“While the government is brimming with cash, Minnesotans are still grappling with inflation at its highest level in 30 years, gas prices up 50% or more and a shock of stickers on their utility bills. ‘energy,” Daudt said in a statement. “This record surplus gives us a real opportunity to help make life more affordable for Minnesotans and prevent Governor Walz and Democrats from raising taxes on struggling businesses later this month.”
Businesses across the state are expected to face a tax hike in December to replenish the Unemployment Insurance Trust Fund, which funds unemployment benefits for workers. The fund is running a $1 billion deficit, and the state has borrowed money from the federal government so unemployment relief can continue.
The estimated $7.7 billion surplus will be front and center when the Legislative Assembly convenes for its next regular session on Jan. 31, 2022. MMB officials said it included a carryover of 3.1 billion from fiscal year 2021; $127 million unspent at the end of the 2021 legislative session; and $5.5 billion which is expected to be earned by the end of the current biennium in June 2023.
However, laws require that a portion of the surplus be allocated to replenish certain state accounts, including $870 million for the state budget reserve and $111 million for the stadium reserve fund. the US Bank. These funds are also factored into the $7.7 billion total.
The forecast does not include money from the American Rescue Plan Act recently signed by President Joe Biden, which will provide $1.9 trillion in stimulus to states intended to fuel economic recovery and provide assistance for recovery programs. public health.
Minnesota is set to receive billions of dollars under the law, but MMB Commissioner Jim Schowalter said the November forecast focused on the state budget and spending. He said the surplus “resets” the budget as the economy learns to adjust to the pandemic.
“Net income of $7.7 billion in today’s forecast is out of the ordinary, even in these extraordinary times,” he said. “The state’s fiscal position is strong and we have the opportunity to take actions unimaginable last year.”
Schowalter said a substantial portion of the surplus is non-speculative and about “$3.1 billion” is already “money in the bank.”
IHS Markit, the state’s economic consultant, said several important economic variables such as employment and inflation-adjusted consumer spending have shown stronger-than-expected growth this year. The company believes the economy will continue to grow in 2022 as more people return to work, supply chain issues are resolved and progress in the fight against the pandemic continues.
IHS cited improvements in the supply chain and increased labor as factors it says will help slow inflation by the end of next year.
Minnesota’s unemployment rate is 3.5%, 1.1% lower than the national rate and 14and the lowest in the country. But the labor force has also shrunk by 84,000 since the start of the pandemic due to retirements and those choosing not to participate. This should help spur strong wage growth over the next few years and IHS expects the employment rate to return to pre-pandemic levels by the middle of next year.
State Economist Laura Kalambokidis warned the forecast was made on the assumption that the COVID-19 virus would continue to recede and said the November forecast was completed before the omicron variant emerged. .
“The U.S. outlook remains uncertain of course,” she said, “and depends on the trajectory of the pandemic and the responses of households, businesses and governments to the evolving public health landscape.”