State economist isn't concerned: What's in store for state surplus?

For the first time in years, lawmakers must decide what to do with money they weren't expecting. They have a $701 million surplus covering the two-year budget cycle that ends in June 2007, and they have more than $300 million left over from fiscal year 2005, which ended this June. Here are some possibilities.

- School aid shift: When the state was short on cash it covered some of its bills by delaying aid checks to schools. They also played with school property tax effective dates for accounting reasons. Both shifts will be largely undone by the $701 million surplus, according to current law. Schools will get their first taste of the money in two weeks.

- Property tax relief: Both Democrats and Republicans want to do something about property taxes, which are climbing an average of 10.2 percent statewide. DFLers have been using the issue to attack Republican Gov. Tim Pawlenty, saying his stance against tax increases have shifted more costs onto property taxpayers. Neither side has come out with a specific proposal yet.

- Roads and rails: Democratic Senate Majority Leader Dean Johnson hinted that transportation and transit could be in line for a cash infusion. Pawlenty vetoed a $7 billion transportation spending bill earlier this year because it contained a dime-a-gallon increase in the gas tax, which the governor said should be authorized by voters, not lawmakers.

- Stadiums: Only one proposal -- the University of Minnesota football stadium plan -- relies on general state dollars. But the Minnesota Twins and Vikings could find the legislative climate more friendly. Past deficits have put their plans on the backburner.

ST. PAUL - The Minnesota economy is growing, but not as fast as the national average, a state Finance Department report shows.

The report says that the state's unemployment rate of 3.7 percent is well below the 5.1 percent national average, but Minnesota is not adding as many jobs as other states.

Gov. Tim Pawlenty, while saying the state has a bright fiscal future, added that one of the few economic problems remaining is when Southern states steal jobs. "We need to be more competitive," he said.

State Economist Tom Stinson is optimistic the state's economy will improve.

"The economic outlook is a little bit touchy, but I am not overly concerned," Stinson said.

Wednesday's budget forecast shows the state could afford to sell $965 million in bonds to finance public works projects.

Legislative leaders and Pawlenty would not say how much they will propose spending.

Finance Commissioner Peggy Ingison said a nearly $1 billion bonding bill might fit into the current two-year budget, but it could prove too costly for future budgets when bonds would have to be repaid.

Pawlenty suggested he wanted a "good-sized" bonding bill without defining what he meant.

At first glance, having about $1 billion more than expected seems like a good thing for legislators facing re-election campaigns next year.

But oftentimes excess money means excess debate about how to spend it.

"Having more money may create some problems, but they are the problems we like," said Rep. Jim Knoblach, R-St. Cloud.

Legislative leaders promised they would strive for a short session, which begins March 1 and must end by May 22.

E Budget forecasts like one released Wednesday come twice a year, with the next one due about the time lawmakers return to the Capitol on March 1. The basic report is prepared by a national consulting firm.

- All sides agreed that Wednesday's budget forecast is good news, but Senate Majority Leader Dean Johnson, DFL-Willmar, did not go as far as Pawlenty's comments that indicated it shows a remarkable turnaround. "We can have a gentle celebration, a glass of beer instead of a glass of champagne," he said.

- The bottom line in the forecast is that when the last legislative session ended in July, a $12 million budget balance was expected. The new forecast calls for $701 million, with another $317 million available for tax relief. Spending remains about the same, but tax revenues are now expected to be higher than planned.

Associated PressReaders can reach Forum reporter Don Davis at (651) 290-0707