Despite projected surplus, caution is advised at the Capitol

Minnesota has the good fortune, once again, to have a projected surplus in its latest economic forecast. But with that projection comes cautionary notes.

First, it's not really $1.5 billion. By law, the state counts inflation in its revenue projections, but not in its spending projections. This is handy for politicians on both sides, who can claim the "surplus" allows for greater spending or greater tax cuts, take your ideological pick. But it ignores the reality of inflation — a little over $1 billion. Much of that is tied to the wages of the public employees who make this state run, along with rising costs of needed goods. Unless the state is willing to freeze wages or forgo other expenses, it cannot provide the same services for the same cost.

Second, some of that $1.5 billion is already spoken for. To break last year's legislative stalemate, Gov. Tim Walz, House DFLers and Senate Republicans tapped the budget reserve for $491 million to broach differences. That money should be restored as a hedge against uncertain times ahead. When a downturn hits, Commissioner Myron Frans told an editorial writer, "revenue drops very, very quickly. Meanwhile, demand for services goes up."

Mindful of that, Walz said of the forecast, "I'm going to urge caution here ... especially where we see yellow flashing lights in an economy."

One of those flashing yellow lights is the fast-moving coronavirus. It has not hit Minnesota, and so is not accounted for in the forecast, but few officials doubt it is coming.

There are a few smart things lawmakers can do. Refilling — and even adding to — the state's disaster relief fund should be a priority. Extreme weather events are bleeding resources dry and mounting all the time. The recent spate of grain bin deaths speaks to the need for helping farmers with safety equipment that can save lives. Legislators would also be wise to add to a public health response contingency fund, first created in 2017, that now may prove critical in the state's ability to mobilize quickly in the face of an outbreak. The fund holds less than $5 million, which could go quickly in an emergency.

Frans also noted that the state must respond to a recent report from the state Office of Legislative Auditor on staffing shortages and other problems that are compromising prison safety.

Massive givebacks such as the Republican proposal to eliminate Social Security benefits from taxation should be avoided. That alone would cost close to $1 billion in the coming two-year budget period and only increase with the state's growing number of retirees. It is a discussion worth having, but best left for next year's budget-making session. Similar caution should be exercised with DFL proposals to increase child-care funding and other ongoing costs. Permanent expenses should have permanent funding sources identified.

Minnesota should, however, leave room for a sizable bonding bill. The state has many infrastructure improvements to make and repairs to catch up on, as well as worthy projects that can become catalysts for future growth.

"I know I sound like a broken record, but the key thing is not to overspend," Frans said.