Minnesota tax revenue collections continue to exceed projections as the state navigates the lingering pandemic, worker shortages, supply chain issues and other economic headwinds for small businesses.
In early October 2021, Minnesota Management and Budget – the agency in charge of monitoring the state’s finances – released a quarterly revenue update showing tax collections for the first three month’s of state’s fiscal year (July-September 2021) were $650 million above forecast. The largest factors were higher than expected individual income and corporate tax collections.
State tax revenue projections went on a rollercoaster ride during the pandemic era. In February 2020, state officials expected a $1.6 billion surplus for the 2020-21 budget cycle. During the initial spread of Covid-19 in the spring of 2020, state officials warned the surplus could turn into a $2.4 billion deficit. But by December 2020, we swung back to black with a $630 million surplus projection. Finally, in July 2021, the state announced a $2.7 billion surplus for the 2021-22 budget.
In all, state government is awash in excess cash. A multibillion dollar surplus, over $1 billion in unspent federal Covid-19 relief funds, and a state budget reserve of $2.4 billion. We’ll get a fuller picture when the state releases a its annual budget and economic forecast in early December.
The Legislature reconvenes on January 31. Undoubtedly, there will be temptations to spend the surplus and federal funds on new or enhanced programming. However, the Legislature and Governor Walz should prioritize tax relief for small businesses as they continue to navigate multiple obstacles beyond their control.
Minnesota Legislature Special Session: No Deal Yet
As part of the final budget negotiations in June 2021, the Legislature and Gov. Walz set aside $250 million for bonus pay to frontline workers for their efforts during the pandemic. A legislative working group was set up to create a disbursement plan, with an eye toward a special legislative session in September 2021.
That date came and went with no deal on frontline worker bonuses, with the working group submitting two diverging plans for distributing the money.
A special session appears unlikely any time soon. In addition to differences on frontline worker pay, Gov. Walz and Republicans in the state legislature are at odds over whether the heads of any state agencies could be terminated during the special session and disagree on a long list of additional pandemic measures sought by Gov. Walz.