Forecast to give look at financial standing

ST. PAUL  — It’s time to start talking cash at the Minnesota Capitol.

Budget officials were preparing to release the state’s economic forecast today, a critical look at Minnesota’s financial standing that will determine whether a Republican-controlled Legislature will have a budget surplus or deficit to work with in 2017. That number will set the stage for negotiations for a two-year budget between Republicans and Democratic Gov. Mark Dayton.

Here’s a look at what might be coming for lawmakers when the Legislature resumes Jan. 3:

What’s expected?

Most lawmakers are expecting to see a surplus, but it’s tough to guess how much money they may have to move around.

They’ve got reasons to be bullish. The state is carrying over nearly $730 million from this year, money set aside for a tax bill that wasn’t enacted and a deal on transportation funding that never materialized in the 2016 session.

And despite signs of a weakening national economy and some tax collections dipping below projections, it’s only half of the equation. Government spending is the other factor, and roughly $400 million in unexpected savings on health care programs last year helped build up a $1.2 billion surplus. Those cost-cutting measures could continue into 2017.

Gov. Mark Dayton guessed Thursday they’ll see a smaller surplus than what the Legislature had at the start of 2016. Rep. Jim Knoblach, the Republican chairman of the powerful House Ways and Means Committee, largely expects the same.

“I’d probably be pleasantly surprised if it was a $1 billion surplus,” Knoblach said. 

What if it’s a surplus?

Any budget surplus will be smaller than it appears.

That’s because state law sets aside a third of any surplus for a rainy day fund. Still, Knoblach said a tax bill will be a top priority for House Republicans, as will finalizing some transportation funding.

And with Republicans taking control of the Senate, Knoblach said the Legislature may retool the $260 million tax relief package passed this year by the House and a Democrat-majority Senate. Dayton vetoed that bill, citing a wording error.

“You can argue that a tax bill from our point of view probably ought to look better than the one we passed. But that’s all subject to negotiation,” Knoblach said.

But Friday’s report won’t be the final say. The Legislature’s budget work won’t begin in earnest until after budget officials give a final update on the economy in February.

How about a deficit?

If it’s a deficit, it wouldn’t be the first.

A deficit would echo 2011, when Dayton and a Republican-controlled Legislature squared off in budget negotiations to fill a $6 billion hole in Minnesota’s budget, bringing state government to a 20-day shutdown.

There’s virtually no chance next year’s Legislature will face a shortfall of that size. But tax collections have fallen behind previous projections, including a nearly $100 million dip between July and September.

The memories of multibillion-dollar budget deficits are still fresh for Dayton, and he has consistently said avoiding a repeat is a top priority.

“We have turned around the economic fortunes of the state, and I certainly want to make sure that’s protected,” he said.