As we prepare for the holidays, state lawmakers begin preparation for the 2016 legislative session. The table is getting set: the budget forecast has been announced; legislative committee deadlines have been established and the pre-session posturing begins.
We can’t help with you holiday preparations but we can help you prepare for this legislative session. Let’s take a closer look at the budget surplus.
A lot of numbers get thrown around in regards to the budget surplus and there are some new changes in effect. We want to give you a clear picture as to how those changes got us to the $1.2 billion surplus.
State General Fund Revenues: $42.72 billion
State General Fund Expenditures: $41.66 billion
2016-17 Projected Budget Surplus: $1.9 billion
This is good news — it is an improvement from the previous forecast. This includes the balance from last session.
Balance forwarded from 2015 session: $865 million
Recall that in the 2015 legislative session, lawmakers left $865 million in revenue on the table unspent. This was mostly due to the fact there was no transportation or tax bill.
Transfer to Budget Reserve Target: $594 million
A 2014 state law (M.S. 16A.152) made two changes to the desired levels of budget reserves in Minnesota. Previously, the budget reserve was statutorily capped at $653 million.
First change: The target is now based on an annual evaluation by Minnesota Management and Budget (MMB). The target is set as a percentage of each biennium’s revenues and allows for the target to adjust over time. The reserve target is set by MMB at 4.8 percent of biennium’s general fund revenue (non-dedicated).
The second change requires that 33 percent or one-third of the positive general fund balance from the November forecast be transferred to the budget reserve account until the target is reached.
In summary, MMB recommends a reserve target of 4.8 percent or $2.07 billion for 2016-17 biennium. Minnesota’s budget reserve account currently is 2.45 percent or $994 million. This is the largest budget reserve in state history.
The cash flow account remains the same at $350 million for a combined budget reserve total of $1.344 billion.
Fiscal stability for schools
The above changes are fiscally sound and promise legislators a larger safety net during economic downturns and long-term fiscal stability. From the school boards’ perspective, a healthier fund balance will reduce future cuts in education and the temptation to borrow money from school districts in a time of shortfall. Also, this promotes positive ratings by credit ratings agencies.
Spendable revenue: $1.2 billion
This leaves $1.2 billion as left over money for lawmakers to spend in the upcoming legislative session. Legislative leaders have responded with their general priorities. The governor calls for spending in early childhood, roads and bridges, and broadband. The House has indicated that tax relief or tax reduction and transportation. The Senate Democrat leaders have talked about transportation, property tax relief and business property tax reform.
MSBA believes that a portion of surplus should go to K-12 schools. School board members from across the state need to send a unified message: a portion of the surplus should be targeted to K-12 education to help school districts meet the unfunded needs of our districts.