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Column: Lawmakers should be cautious with surplus

Senate Report, By Dan Sparks

The Minnesota Department of Management and Budget is the state agency responsible for coordinating state finances, accounting and budgeting processes. Earlier this week, the department released a new forecast that projects a $329 million state budget surplus for the current biennium. This is an improvement from the $188 million deficit projected back in November.

Dan Sparks

I’m proud that Minnesota’s economy has produced a modest state surplus, but it is important for state lawmakers like me to be good stewards of your tax dollars and consider all the facts before deciding what to do with those dollars. For example, we do not yet know the long-term impact of federal tax reform. I urge my colleagues to be cautious and avoid hasty reactions to the new forecast.

State budget snapshots are a helpful tool for policymakers, but the conversations I have with families, farmers and employers in southern Minnesota is the economic gauge that I rely on. A modest surplus in the state coffers does not necessarily translate to a surplus in the pocketbooks of ordinary people. I want to hear how your family economy is doing, so please keep your letters, emails and phone calls coming. I depend on your feedback to make big decisions that affect our everyday lives.

I encourage you to read the department’s report for yourself and send me your questions and feedback. You can view the full report online at www.mn.gov/mmb, but here’s a quick look at some of the data on state tax revenues and expeditures:

• Individual income tax receipts are now forecast to be $25 million (0.1 percent) more than the prior estimate.

This change is due to higher forecast growth in wage income from 2017 to 2019, which offsets a lower estimate of tax liability for 2016, the base year for this forecast. In addition, this forecast reflects increased state income tax revenue expected to arise from taxpayer response to federal tax law changes in the TCJA. These changes are estimated to add about $137 million to income tax revenues in fiscal year 2018-19.

• General sales tax revenue in FY2018-19 is now forecast to be $119 million (1.1 percent) more than the November forecast.

Higher expected gross sales tax receipts and a lower forecast of refunds both contribute to the change. Gross sales tax receipts so far in FY 2018 are lower than forecast in November. However, this shortfall is more than offset by a higher forecast for taxable sales. In this forecast, we expect our estimate of the taxable sales base to grow 1.1 percentage points faster in 2018 and 1.6 percentage points faster in 2019 than we had assumed in November.

• The corporate franchise tax is forecast to generate $131 million (5.3 percent) more than the prior estimate.

Higher forecast gross corporate payments and lower forecast refunds both contribute to the change. In addition, this forecast reflects increased state corporate tax revenue expected to arise from taxpayer response to federal tax law changes in the TCJA. These changes are estimated to add $19 million to corporate tax revenues in FY 2018-19.

• Other tax revenue is now expected to be $73 million (2 percent) more than the November forecast.

Among other taxes, the estate tax shows the largest dollar amount change, $45.6 million (16.1 percent) more than the November forecast. This change reflects higher than expected estate tax receipts so far in FY 2018. The forecast for cigarette and tobacco taxes is $43.7 million (3.5 percent) lower than the November forecast. This change is due to sellers shifting their stamp purchases from FY 2018 into FY 2017.

• Expenditures in the current biennium are now forecast to be $45.79 billion, $167 million (0.4 percent) lower than November estimates.

E-12 education is expected to be $54 million (0.3 percent) lower largely due to lower forecast special education and compensatory aid spending. Health and Human Services (HHS) spending is expected to be $254 million (1.8 percent) lower than November forecast estimates. November HHS spending estimates included increased state obligations due to a federal funding lapse for the Children’s Health Insurance Program. In January, the federal government appropriated funding for CHIP, which results in $225 million in lower state general fund obligations in FY 2018-19.

Dan Sparks, DFL-Austin, is the District 27 senator.