Minnesota budget surplus stable at $17.5 billion

February budget projections will set the stage for budget discussions in the state Legislature.

Minnesota Management and Budget Commissioner Jim Schowalter presents his agency's updated budget projections to reporters at the Department of Revenue in St. Paul on Monday, Feb. 27.
Alex Derosier / Forum News Service

ST. PAUL — Minnesota’s budget surplus now sits at $17.5 billion, holding steady since the previous forecast, according to projections released Monday, Feb. 27.

That’s slightly lower than the December estimate of $17.6 billion. This projection now also factors in inflation, something the state hasn’t done in decades. Last week, Gov. Tim Walz signed a law bill restoring inflation to government spending estimates. The state also cut taxes by about $100 million last month by aligning its tax code with new policies in the federal code.

The bill brings Minnesota’s tax code into alignment with the federal code, which underwent several changes in recent years as Congress passed pandemic-relief bills.

The Minnesota Management and Budget Office said much of the surplus is leftovers from the current budget biennium. Individual income and corporate income tax were up but offset by inflation, and the state is expected to have revenues exceed spending through 2027. Management and Budget Commissioner Jim Schowalter said the projections largely align with what his agency expected to see out of its February forecast.

“You’ll hear the words 'unprecedented' and 'unexpected' a lot less today than you have in previous briefings,” Schowalter told reporters of the new budget projections. “The key takeaway for today’s budget forecast is the economy is stable and the budget outlook is very good.”

The current projected budget surplus would have been higher if the state still did not account for the impact of inflation on government spending. February’s forecast withholds about $1.4 billion to account for the cost of inflation.


Another potential headwind for the state is a “mild, investment-driven recession” in the first half of 2023. But both inflation and the recession are not projected to have as big of an effect on the economy as initially thought, according to the forecast.

Minnesota has been running a record surplus since December 2021, when officials reported $7.7 billion in extra cash. By February 2022, it had grown to a projected $9.25 billion, and with state government control divided between Democrats and Republicans, much of that money was left on the table after an election-year legislative session that saw few significant bills pass. By December 2022, the management and budget office reported the surplus had grown to an eye-popping $17.6 billion — more than $12 billion of which is leftover cash.

February budget projections will set the stage for budget discussions in the state Legislature. Lawmakers and the governor must reach an agreement on a two-year state budget by the end of June. Democrats now in complete control of state government have their eyes set on creating a paid family and medical leave program and significantly growing spending on education.

Walz in his January budget recommendations pitched billions in child tax credits as well. Already this year, Democratic-Farmer-Labor lawmakers and Walz have moved significant volumes of legislation.

The $12 billion package includes billions in additional education spending, including more than $800 million for universal lunch for public school students.

"We're seeing gridlock has come to an end," Walz said. "We're seeing opportunities and again in this, recall, $12 billion and that surplus should have been handled last May, when a decision to choose political messaging over what was good for Minnesota was made we ended up going home."

You’ll hear the words 'unprecedented' and 'unexpected' a lot less today than you have in previous briefings.
Management and Budget Commissioner Jim Schowalter

In January, Walz released his recommendations for a two-year $65 billion budget, which has a lot of crossover with priorities of DFL majorities in the Senate and House but with a few key points of departure. Walz has pitched cuts to income taxes on Social Security and direct payments of up to $2,600 for millions of Minnesotans, something DFL legislative leadership has not yet expressed full support for.

House Speaker Melissa Hortman, DFL-Brooklyn Park, said the House Taxes Committee would be holding a hearing on the governor’s budget on Wednesday, but said it's too early to say what House Democrats would do on direct payments. However, she said DFLers in the Legislature have many shared priorities with the governor.

House Speaker Melissa Hortman, DFL-Brooklyn Park, right, takes questions from reporters Monday, Feb. 27, at the Department of Revenue in St. Paul. Senate Majority Leader Kari Dziedzic, center, and House Majority Leader Jamie Long are Minneapolis Democrats.
Alex Derosier / Forum News Service

"We certainly share the governor's objective of reducing child poverty in Minnesota and I think depending on how you structure checks, we can think of them as an advance child tax credit," she said. "We'll be hearing the governor's entire tax bill soon and discussing how to meld his priorities as they're expressed in his tax bill with our priorities as they're expressed in our various tax bills"


Republicans have said the state should use the surplus for tax relief, and criticized Democrats for using the extra funds for more government spending.

"With single-party control, Democrats' priorities focus only on spending the surplus on more government and divisive social policies," said Sen. Minority Leader Mark Johnson, R-East Grand Forks. "It is clear Democrats are not thinking about everyday Minnesotans and the struggles we face in managing our daily budgets in the face of intense inflation.

"Minnesota families, businesses and communities deserve better," Johnson said. "Let’s get this money back where it belongs.”

This story was updated at 4:28 p.m. Feb. 27 with additional information. It was originally posted at 12:50 p.m. Feb. 27.

DFL lawmakers are advancing a proposal that would temporarily remove guns from people deemed a threat to themselves or others.
Department of Education Assistant Commissioner Stephanie Burrage, a former educator and school district leader, will head a new Equity and Opportunity Office.
GOP lawmakers pitched an offer to revive the bonding bill, increase spending for long-term care and nursing homes, and eliminate the state's income tax on Social Security payments.
The move comes as many states across the U.S., including Minnesota’s neighbors, consider or enact legislation restricting puberty-blocking hormones and other treatments for transgender youth.

Alex Derosier covers Minnesota breaking news and state government for Forum News Service.
What To Read Next
Get Local