Record surplus should spur innovation

Opinion editor's note: Editorials represent the opinions of the Star Tribune Editorial Board, which operates independently from the newsroom.

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Minnesota's projected budget surplus of $17.6 billion is a windfall that this state may never see again, the confluence of a global pandemic that resulted in massive federal funding, pent-up demand from nearly two years of mostly sheltering in place, and a resurgence of the economy as things move toward normal.

That wasn't the only good news in the economic forecast released earlier this week. Minnesota's unemployment remains at historic lows. Trade has recovered nicely. Our budget reserves are full, and inflation is expected to inch back down. Even with a mild recession potentially coming, the state appears well-positioned for the future.

That presents Minnesota with some historic opportunities, but there is a need to weigh options carefully. That money — by far the largest surplus in state history — is enough to allow for state investment that can drive innovation and lay the groundwork for future prosperity. There are many needs in this state: public education, still grappling with the aftermath of the pandemic; public safety, which is in crisis right now; mental health needs that have only worsened in the last two years, and a backlog of infrastructure projects.

But there is also the chance to do more, to dream a little bigger. Whether that involves climate change and better electric vehicle networks; a broadband network laid from one corner of this state to the other, or innovative public transportation projects is too early to say. But we would encourage lawmakers to engage in some serious brainstorming.

Charlie Weaver, head of the Minnesota Business Partnership, a former legislator and former state commissioner, told an editorial writer that "whether it's education or infrastructure or energy, this is a once-in-a-lifetime opportunity. Let's not screw it up. Let's be bold."

One way to tap that potential, he said, would be to create a $1 billion innovation fund designed to draw matching federal funds for new ideas. Often, he said, the match is not one for one, but one state dollar for every five or six federal dollars, becoming a force multiplier that can boost new efforts.

"Other states have this," Weaver said. "We're already a center for health care, agriculture, medical devices. Going forward in the next 10 to 20 years, we need to figure out what we're good at and then be the best at it. That's what's going to attract talent and build this state."

DFLers will control the state's top offices and both bodies of the Legislature as a result of the last election. That presents a chance to control the agenda not seen in many years. Nevertheless, we would urge them not to overlook contributions that Republicans might make. This state is at its best when both sides come together and are vested in improvements.

Gov. Tim Walz has already smartly positioned himself in that middle ground that could serve to bridge differences among the four caucuses and two parties. The governor should make his case for rebate checks, implemented in such Republican states as Florida, which could provide immediate relief to Minnesotans grappling with high inflation. But it's worth debating whether doing so would add to the inflation problem.

Walz has also indicated he is still in favor of a repeal of state taxes on Social Security for "a large number of Minnesotans." That may not make much sense from a strictly progressive point of view. House Speaker Melissa Hortman has said it would have "exploding tails" given the state's aging population. And it would give the highest return to the wealthiest Minnesotans, since a large part of Social Security income at lower levels is already shielded from state taxes. But it's also true that Minnesota is an outlier — one of only 12 or 13 states that still tax Social Security. There may be value in persuading wealthier Minnesotans — and their assets — to remain here.

Similarly, Democrats are pushing hard for paid family and medical leave, to be funded by a possible mix of employer and employee payroll taxes. According to the National Conference of State Legislatures, fewer than a dozen states offer some form of paid family and medical leave. That could be a transformational issue that revitalizes this state's ability to attract new talent. but talks should include all stakeholders, including businesses, unions and others.

Minnesota's window won't stay open forever. According to State Economist Laura Kalambokidis, the unemployment rate is expected to rise to 5.7% in 2023 and remain above 4.5% through 2026. The economic slowdown would affect everything from business and housing to wages. Individual income taxes are projected to fall by nearly $1 billion in the coming biennium. Minnesota, she said, has one of the tightest labor markets in the country, with only four job seekers for every 10 openings, and that's limiting growth.

That all makes it imperative for Minnesota to invest wisely and in ways that will produce a defined payoff for the state. The 2023 Legislature will have serious work to do in balancing needs and wants, separating ideas that could transform from those that lack substance. We urge lawmakers to come together quickly and do what they can to seize an opportunity that may never come again.

Editorial Board members are David Banks, Jill Burcum, Scott Gillespie, Denise Johnson, Patricia Lopez, John Rash and D.J. Tice. Star Tribune Opinion staff members Maggie Kelly and Elena Neuzil also contribute, and Star Tribune Publisher and CEO Michael J. Klingensmith serves as an adviser to the board.