Minnesota's November budget and economic forecast was released on December 3, 2015, showing a projected $1.9 billion budget surplus for the remainder of the FY 2016-2017 biennium. This is $1 billion above the budget surplus projected at the end of the 2015 legislative session. State law requires one-third of any surplus in the FY2016-2017 biennium be allocated to the state's budget reserve and another $71 million be allocated to state environmental funds, leaving a balance of approximately $1.2 billion.

Other highlights from the budget and economic forecast include:

• The state’s budget reserve now stands at $1.597 billion, roughly $500 million below the $2.03 billion recommended in statute.
• Higher than expected sales and corporate tax receipts offset lower than anticipated income tax receipts for the remainder of the biennium.
• Minnesota is estimated to spend $219 million less in FY2016-2017. Human Services spending is estimated to be $416 million less for the biennium due to lower health care rates and MA payments. This amount is partially offset by projected increases in E-12 and other areas.
• The long-term budget outlook remains strong with a $2.046 billion surplus projected for FY2018-2019 (without adjusting for inflation).

A complete budget and economic forecast is available on the Budget & Economic Forecast page of the Minnesota Management & Budget website.

The budget and economic forecast is used as the basis of the supplemental and capital budget recommendations for Governor Mark Dayton. The next budget and economic forecast, released in March, will be used by the Minnesota Legislature as the basis to respond to the Governor's supplemental budget, as well as to ensure that FY 2016-2017 budget enacted last session remains on track and in balance.

The current surplus impacts the size and elements of both bills moving forward and opens the door to new budget requests and a potentially a large bonding bill. Myron Frans, the Commissioner of Minnesota Management and Budget, indicates the projected surplus could support a "multi-billion" bonding package.

A tax bill and transportation funding are two priorities the legislature and Governor will discuss in 2016. These two areas of the budget were unresolved at the end of last session, and the House and Senate agreed to table both the tax and transportation funding packages until the 2016 session.

Governor Dayton and legislative leadership, at dueling press conferences, discussed the budget and economic forecast and previewed their spending priorities for the upcoming session.

Almost immediately following the forecast announcement, the Governor took a gas tax increase off the table to fund an expected transportation package. He said he is open to middle class tax cuts and will support increased spending on early education and $100 million in broad band grants.

The House Republicans signaled that tax relief and reform, evenly divided between businesses and the middle class, is their top priority. They also expressed a strong desire to use general fund revenue to support transportation projects outside the metro area.

Senate DFLers will be focused on education, transportation and limited tax relief as top priorities as they move forward to best determine how to utilize the surplus.

Upcoming Legislative Notes

The legislative session begins March 8, 2016, when we will begin our regular weekly updates. In the meantime, Governor Dayton will be releasing his capital bonding proposal before January 15, 2016.