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Minnesota is projecting a $17.6 billion budget surplus — up $5 billion from the state budget agency’s previous forecast, according to the state’s budget agency.

Minnesota Management and Budget said Tuesday the agency is projecting lower expected growth and economic headwinds for the next two-year budget, which starts in July. It is also expecting the budget will be balanced with the leftover surplus and healthy net revenues.

District 27A Rep. Peggy Bennett, R-Albert Lea, admitted she was surprised to learn the amount of the surplus, but that after learning about it her reaction was the same as last year when the state produced a surplus.

“This large surplus shows that the people of Minnesota are paying in way too many taxes, and I believe we need significant tax relief,” Bennett said. “One, because people are paying in too many taxes and two, they sure could use it during this time of inflation when prices are so high and people are struggling to afford sometimes even the basics.”

That said, she said some of the surplus should go to nursing and group homes that were in danger of closing. And she wants to do that at the start of the next legislative session.

“They do not have the funding they need to be able to pay their employees to compete with the wages that are out there that they can get elsewhere,” she said.  

She also wants to reserve some of the surplus to provide tax relief. 

Her biggest priority for the next session was eliminating the tax on Social Security benefits. Minnesota was one of 11 states that imposed some type of tax on Social Security benefits in the 2022 tax year.

She was also happy to note the state wasn’t in a deficit.

Control of the Legislature had been split between a Republican Senate and Democratic House for the last four years, but with Democrats flipping the Senate, they will take complete control of Minnesota state government for the first time in eight years.

Democratic Gov. Tim Walz indicated he would like to use most of the surplus on one-time spending and tax relief, and also to revive his proposal for one-time income tax rebates. The new Democratic majorities are developing their own proposals, and leaders have indicated education, child care and paid family medical leave would be priorities.

“The golden opportunity that we have to make Minnesota an even better and fairer and more inclusive and more prosperous state is there,” Walz said. “And the opportunity to work together in the legislative bodies to make that happen is there.”

The governor also indicated he might support an easing of the state’s partial income tax on Social Security benefits but said eliminating it for the wealthiest Minnesotans is off the table.

He plans to release his proposal for the surplus Jan. 24 for the two fiscal years starting July 1. 

Bennett said she was open to any idea that would provide people relief.

“I would certainly be open to considering that,” she said. “I think a lot of the one-time spending idea is wise. You don’t want to do a lot of things that put us on the hook for long-term spending.”

That said, she acknowledged tax relief was different and said taxes needed to be lowered.

“Our economy right now is pretty vulnerable and we do need to be careful cause at any time [the economy] could take a downturn and move into a real recession or something like that, she said. ”That’s why we need to be careful not to put ourselves on the hook for a lot of long-term spending, cause things can change pretty quickly in our economy, and suddenly we’ve put ourselves into a deficit if we do that.”

In a press release, Brian Holmer, president of the Coalition of Greater MN Cities and mayor of Thief River Falls, said state leaders had a one-time opportunity to make investments that would leave a lasting impression in improving communities.

“I urge policymakers to keep in mind that Greater Minnesota has many critical needs,” he said in the statement. “Local government aid, which plays a vital role in restraining property taxes and lessening disparities between cities, has not kept pace with inflation and the increased financial pressures on cities. Cities across the state are facing the need to make expensive upgrades to their aging wastewater and drinking water facilities, along with other essential infrastructure.”

He also said the surplus could provide the resources needed to deal with shortages in child care and housing, which have hindered communities’ economic growth.

“With today’s budget announcement, our state can quickly tackle some of the big-picture problems that have impacted Greater Minnesota for far too long,” he said. “We look forward to working closely with Gov. Walz and the Legislature to seize this unique opportunity.” 

Most of the surplus is about $12 billion in one-time money that will be sitting in the bank for the next budget. It results from stronger-than-expected tax revenues and lower spending. The projection factors in the forecast by the state’s economic consulting firm of a “mild recession” from now through mid-2023.

The agency’s previous forecast was for a record $12.1 billion surplus, including about $7 billion that the 2022 Legislature was unable to agree on how to spend because of partisan stalemates.

— The Associated Press contributed to this report.