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UPDATED: State budget shows a surplus, but comes with warnings

Jaws dropped this morning as Minnesota leaders learned the state budget will be $876 million bigger than earlier thought.

But the news came with warnings:

-- A $1.3 billion deficit is expected in two years.

-- The Minnesota economy could take another turn for the worse if the European economy stumbles.

-- The good news depends, in part, on continuation of a federal tax cut established in the President George W. Bush years.

Many Capitol watchers had predicted a deficit of up to $1 billion, but state fiscal leader said the improved news partially comes from spending less money than planned on health-care programs.

There was general agreement that the really good news today was that the surplus, by current law, is to be used to replenish the state budget reserve. However, there have been indications that lawmakers may consider spending some of the money for anything from a new footballs stadium to cutting business or property taxes.

Republican legislative leaders said they will not use the surplus for a stadium, but House Speaker Kurt Zellers said it is premature to discuss how lawmakers could use the surplus, of if they will leave it in the bank.

A smiling Commissioner Jim Schowalter of Minnesota Management and Budget announced the surplus just before noon.

"Certainly, it is a good day," Schowalter said.

But he and State Economist Tom Stinson provided plenty of warnings that the projected surplus could dry up.

"These forecasts are not guarantees," Stinson said.

Nationally and internationally, "I think the situation is getting a little dire," he added, with some predicting a European recession will affect the United States.

Stinson said Minnesota's economy is doing better than the national numbers because it has a highly educated and productive workforce. The state is expected to continue outperforming the national economy, Stinson added.

Budget forecasts like today's come twice a year. While today's figure gives state leaders guidance, one to come in late February or early March will be produce the number used by next year's Legislature.

Budget forecasts are estimates of how much money the state will receive in taxes and other revenues. State officials then compare that figure to how much current law requires the state to spend so they can figure the deficit or surplus.

During some of then-Gov. Jesse Ventura's years in office a good economy fed the state plenty of money; "boatloads of money" in the words of Finance Commissioner Pam Wheelock. That all changed as the economy headed south and the Legislature and governor began turning over stones to find every dollar they could.

The Legislature passes a two-year budget in odd-numbered years, but usually must make some adjustments the following session.

To fix a $5 billion deficit, legislators went into overtime this summer, forcing a 20-day government shutdown before agreeing with Democratic Gov. Mark Dayton on a plan. That plan borrows money, delays payments to schools and cuts state spending in a variety of areas (while raising spending in others, such as health care).