Commentary: Key decisions on tap amid vast state surplus
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By Rep. Paul Anderson, R-Starbuck, MN
In the days leading up to the release of the November state budget forecast, rumors were swirling about the size of the projected state surplus. When the actual figure was released last Monday, it was a jaw-dropper. Seven-point-seven billion dollars is the amount of money projected to be left in state coffers at the end of this current biennium in June of 2024!
A quick disclaimer is in order here: June of '24 is a long ways off, and many things could happen in the next 18 months to alter that figure. The biggest unknown is the pandemic and what its course will be in the days and months ahead. We pray that it goes away, or at least subsides, so the intense pressure currently pushing our health care system to the limit is reduced.
I think the biggest reason for this projected state surplus has to do with the money supply. So much additional cash has been pumped into the system, and folks are spending it. Pent-up demand and additional disposable income mean there is more money chasing whatever goods are available. Because of that demand and a scarcity of some items, the result is higher prices, in some cases, much higher prices. And since most of these goods fall within the state's sales tax formula, collections in that area are expected to increase substantially.
Sales tax revenue is one of the three main sources of income for the state, with $13.6 billion expected over the next two years. The largest is individual income taxes, which are forecast to increase substantially because of higher wages and lower unemployment. That total is projected to reach nearly $30 billion. The third revenue stream is corporate income tax, which is expected to reach $4.3 billion. All told, revenue coming into the state's general fund is forecast to increase by over $5 billion in this current biennium.
There are other reasons for the huge surplus. State spending is some areas is projected to actually decrease. K-12 education, the largest single item in the state's budget, is forecast to see reduced spending of over $300 million. The biggest driver of that is parents taking their children out of public school and either home-schooling or enrolling them in private schools. Another area of lower state spending is the result of an increased share of Medicaid funding picked up by the federal government during this health crisis, which will continue well into next year.
So, the question becomes what to do with all this "extra" money. I've been around when we've been in both deficit and surplus situations, and it's sometimes more difficult arriving at a compromise when there's too much money than when there's too little. That's because expectations can get high, and everyone wants a piece of the new, bigger pie. Right now, it's obvious that taxes are high enough, or even too high, and shouldn't be raised. That premise should be first and foremost.
There are two areas in which I would propose utilizing some of our surplus. The first is to make whole our Unemployment Insurance Trust Fund. Currently, that fund sits at a deficit of over $1 billion because of claims brought on by the pandemic. Premiums paid by businesses into that fund are set to increase dramatically this week, with the first payments due in April of next year. Other states have used COVID dollars to replenish that fund, and we should too. It should not be a burden to our businesses, many already struggling to survive, to cover the unemployment claims when folks were laid off because of the pandemic.
The second area is in health care, specifically nursing homes and assisted living facilities. In many cases, these places are unable to match the wages offered by other businesses. That's because their wage scales are heavily dependent on reimbursement rates paid to them by the state. These facilities are under-staffed, and the workers they do have are putting in extra hours to maintain their quality of care. These folks need our help!