State has a $1 billion surplus for next two years

With a surplus of more than $1 billion projected in the coming biennium, Gov. Mark Dayton hailed the latest budget forecast as "good news" for Minnesota.

But he tempered those comments quickly, saying the state can't overspend in the coming legislative session.

"It means we have to be prudent for sure," Dayton said.

He also pointed out that the budget forecast, which was released by Minnesota Management and Budget today, shows the state is on the right track economically.

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The forecast will guide Dayton as he prepares his budget plan. It may also set the divided Legislature up for a lengthy debate over how to fund high-profile, expensive policies, including money for roads and bridges.

Dayton's two-year budget proposal is due by Jan. 27. He offered few details about what might be in it, but said his budget could include an expansion of the childcare tax credit, more spending on early childhood education scholarships and funding for road and bridge construction.

As for a tax increase, Dayton says he doesn't see the need for one at this point - unless it pays for transportation projects. Already, Dayton has floated a wholesale gas tax to repair and expand Minnesota's transit systems.

Senate Majority Leader Tom Bakk, DFL-Cook said that the projections should make negotiating a budget in the divided Legislature "a little easier."

But he said that while $1 billion might seem like a lot, everyone "should temper their expectations a little bit."

In fact, legislators are likely to cut spending, Bakk told MPR News earlier this week.

"There is little or no appetite among most senators in my caucus to raise new general fund revenue," Bakk said. "So, unless the budget forecast goes south on us, I think we're going to try to work within the general fund revenues that we have."

Republican House Speaker-designate Kurt Daudt of Crown said there are some troubling trends in the forecast, including lagging wage growth.

"We want to make sure we don't turn our back to Minnesota families," Daudt said. "They need to see wage growth in their own budgets."

House Majority Leader Joyce Peppin said she's troubled that members of the DFL are already talking about what they want to fund.

"[We're hearing] how they want to spend every last dime of the budget surplus," she said. "I think we need to be very cautious."

The forecast shows revenue for the 2016-2017 biennium is  projected to be roughly $41.8 billion, a 6.4 percent increase over the current biennium. Nearly all new revenue is coming from the individual income tax and the sales tax.

Still, revenue is down compared to previous projections, in part because of slower wage growth. That revenue downturn is offset by slower than expected growth in spending, particularly on Medical Assistance, which is Minnesota's name for Medicaid.

In all, the $1 billion surplus would be largely spent if the projections included inflation.

"That's up to the Legislature and up to the governor to work through what that budget is going to look like, how they're going to use those resources," said MMB Commissioner Jim Schowalter. "But the good news for now is that the long term picture and the long term fiscal stability of the state is in good shape."

State Economist Laura Kalambokidis said that lagging wage growth is a national trend that's partly due to people working in lower paying jobs.