Minnesota's projected surplus balloons to $17.6 billion

Minnesota's projected budget surplus has grown to a record $17.6 billion, state economists announced Tuesday.

State of play: State lawmakers will decide what to do with the funds as they craft a two-year budget during the upcoming legislative session.

A DFL trifecta means Gov. Tim Walz and Democratic leaders in both chambers will hold the purse strings.

What they're saying: Walz ticked off a laundry list of spending priorities, including schools, universal free lunch for students, child care, transportation and public safety.

• "We can do all of these things," he told reporters. "This isn't a choice of either/or."
• DFL legislative leaders added climate change and affordable housing to the list, while Republicans argued the surplus suggests Minnesotans are over-taxed and that money should go back to the people.
• Groups representing local governments, health care workers, teachers, and trade unions were among those issuing statements urging lawmakers to fund their needs.

The intrigue: A DFL trifecta doesn't guarantee full agreement on how to spend the cash. Legislative leaders were noncommittal on Walz's suggestion that lawmakers revive his taxpayer rebate proposal.

• And while some Democrats who helped deliver a narrow majority in the Senate campaigned on repealing state taxes on Social Security benefits, Walz and leaders stopped short of embracing a full rollback.

Between the lines: Walz, who has proposed higher taxes on gas and high earners in the past, said he isn't taking revenue hikes off the table, even with the record surplus.

• One possible reason? Past proposals for a state paid family and medical leave program, another item atop the DFL's wish list, were funded by a payroll tax increase.

How we got here: While "economic headwinds lower[ed] expected growth," strong tax collections and the more than $7 billion that lawmakers left unspent when the Legislature was politically divided last year caused the projected surplus through June 2025 to grow, per a summary posted by Minnesota Management and Budget.

• Lower-than-expected spending growth on schools and health and human services also contributed.

What to watch: Expect a focus on one-time spending, versus funding for ongoing programs, as an economic downturn could change the state's future fiscal health.

What's next: Months of jockeying over the cash will begin in earnest when the Legislature gavels in Jan. 3. Walz said he will release his budget proposal on Jan. 24.

• The real deadline(s): While the Legislature is supposed to adjourn by late May, the next budget must be in place by the end of June.

Editor's note: This story has been updated with additional details and reaction.