Bill to boost budget reserve passes Senate committee

As Minnesota enjoys a projected surplus after more than a decade of frequent budget deficits, policymakers are considering steps for a more robust “rainy day” fund to help the state better respond to the next economic downturn.

Yesterday the Senate Finance Committee passed a bill authored by Senator Rod Skoe that would increase the state’s budget reserves (Senate File 2250) and set a mechanism to add funds to the reserves in future years.

Minnesota Management and Budget currently recommends reserves of $1.9 billion, so that the state is well prepared for the next economic downturn. However, current budget reserves of $661 million and a cash flow account of $350 million only amount to half of this figure.

Senator Skoe’s bill would make several changes to state laws regarding the budget reserve. It would:

  • Allocate $150 million of the positive balance from this year’s February Forecast to the reserve.
  • Automatically transfer up to a third of any future positive budget balances into the reserve account until it reaches a certain level.
  • Recalculate the target amount needed in the reserve account each year, so that the budget reserve target represents a percent of the state budget (instead of a fixed dollar amount as it does now).

Current law requires that any positive balances go toward the budget reserve until it is filled to $653 million.

Policymakers should strengthen our budget reserves to prepare for the next downturn in the business cycle. Adequate reserves soften the shock of future budget shortfalls and enable the state to better meet the needs of Minnesotans during tough times. The current level is not enough to protect us against the next recession. We are glad to see that the Senate is making the budget reserves a priority.

Senate File 2250 will next be heard in the Senate Tax Committee.

-Caitlin Biegler

About Clark Biegler

Clark Biegler is the Minnesota Budget Project’s policy analyst. She researches and writes about state tax and budget issues. Clark holds a Master of Public Policy degree from George Washington University in Washington, DC; and a Bachelor of Science degree in Public Health from Tulane University in New Orleans, LA. She interned at the DC Fiscal Policy Institute in Washington, DC, Third Way in Washington, DC, Lutheran Social Services, and the Alabama State Office of Primary Care and Rural Health.
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