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Minnesota budget swings from $1.3B deficit to $1.6B surplus

MINNEAPOLIS — Minnesota’s budget outlook has swung from a nearly $1.3 billion deficit to a $1.6 billion surplus, state economists announced Friday, an improvement that sets up debates for the rest of the legislative session over taxes and spending.

Democratic Gov. Tim Walz called for raising taxes on the wealthiest Minnesotans and large companies as part of the $52 billion budget proposal he laid out a month ago, which compares with the $48 billion budget approved in 2019. His plan includes more spending on education and on helping the state recover from the coronavirus pandemic. A coalition of labor and liberal groups held an online rally with Democratic leaders on Thursday in support of Walz’s budget.

But Republican and business leaders were quick to say Friday that the projected surplus shows there’s no need to raise taxes, and that doing so would hurt jobless workers and businesses that are still struggling to stay open amid the pandemic. The Senate GOP majority was adamant against tax hikes.

“We know the Governor’s tax hikes will not become law this year, and we can save ourselves weeks of headaches if the Governor and Democrats acknowledge that now,” Republican House Minority Leader Kurt Daudt, of Crown, said in a statement.

Minnesota Management and Budget said in a statement that its rosier projection is due to an improved U.S. economic outlook, which has been bolstered by stimulus measures the federal government has taken since the state agency issued its last forecast in November.

The budget agency said it no longer anticipates a $1.28 billion shortfall for the upcoming two-year budget period, which begins July 1, and is now projecting the surplus because of a higher revenue forecast, lower projected state spending and an increased surplus for the current fiscal year, which ends June 30.

But the agency also cautioned that improvements “have not been spread equally as unemployment continues to disproportionately impact lower-wage workers.”

Budget officials and Walz planned to release additional details later Friday.