Ten better ways to respond to Minnesota's budget surplus

Minnesota's projected $1.086 billion budget surplus is a sign that the tax and budget solutions of the 2013 legislative session are paying off. By returning the state to its traditional high-road approach, Gov. Mark Dayton and the Legislature have proved that a people-centered budget is good for both the economy and the state's finances.

While this undoubtedly is a positive sign, it is not the final word. The governor will not offer a supplemental budget until after the February 2014 forecast, and a lot can change between now and then. Recent February forecasts have adjusted November forecasts by anywhere from $500 million to $1 billion.

Still, let's assume our surplus remains. Our first priority must be paying back the debts previous legislatures incurred: repaying $246 million to our schools and $15 million to the state's airport fund. What to do with the remaining $825 million, however, deserves more reflection.

First, some context: The tax plan passed in 2013, even with this surplus, restores only about half of what the state lost in the Pawlenty years. It returns the state to the revenue levels of the mid-2000s. That's it.

Second, some analysis: The causes of the surplus tell us quite a bit about what is happening in our economy. Of the $1 billion surplus, about one-quarter is caused by lower-than-expected spending. The other three-quarters, $787 million, is from higher-than-expected revenue. Of this new revenue, 95 percent comes from two sources: individual and corporate income taxes.

The individual income tax estimate was revised up because people in the new fourth tier are expected to make more money. In particular, the forecast estimates robust growth in unearned income — money made from owning investments, not earned through a paycheck. Minnesota Management and Budget writes that "capital gains reported by Minnesota residents in 2012 are now assumed to have grown by 94.6 percent. In [last] February's forecast, growth of 82.6 percent was projected."

Corporate income tax returns were revised up because corporations are also expected to make more money. MMB writes that "assumed growth in Minnesota business income was raised from 5.2 percent to 12.1 percent."

The "sky is falling" predictions of Minnesota's anti-tax lobby have failed to materialize. In October, Minnesota's unemployment rate fell to 4.8 percent, its lowest rate since the recession began in December 2007. This is good, but our job growth remains dangerously unequal. People of color in Minnesota are twice as likely as white Minnesotans to be unemployed. Unemployment among single parents in Minnesota has actually gotten worse since 2012. Our state's projected revenue surplus reflects the boom for some and masks the bust for others.

Still, what should we do if our state has a $825 million surplus? Rest assured, the anti-tax lobby will have some ideas — namely, rolling back taxes on corporations and the wealthy. After only four months of having the 2013 tax reforms in place, their doom-and-gloom predictions will soon get as loud as ever.

But before we consider rolling back corporate taxes, we ought to ask ourselves what our shared priorities are. There are at least 10 things we ought to invest in before corporate tax cuts are on the table. We could use $825 million to:

• Increase K-12 funding to reduce class sizes.

• Reverse health care cuts.

• Create jobs by increasing next year's bonding bill.

• Increase tax fairness by expanding the Working Families Credit.

• Shrink tuition at the University of Minnesota and at the schools of the Minnesota State Colleges and Universities system.

• Finance a sensible transit system.

• Pay for universal early childhood education.

• Boost programs for ex-offender community re-entry.

• Finance the growth of affordable housing.

• Restore cuts to local government aid.

Our budgets reflect our priorities. We ought to use the prospect of a surplus to again ask ourselves what's important for the people of Minnesota. Right now, 140,000 unemployed Minnesotans do not have a surplus. The 357,000 Minnesotans who would benefit from a $9.50-an-hour minimum wage do not have a surplus. Nearly 600,000 Minnesotans living in poverty do not have a surplus.

After a decade-plus of chronic deficits, this $825 million is a rare opportunity. It's a chance to make Minnesota work better for the people who make Minnesota work.

Dan McGrath is executive director of TakeAction Minnesota.