How should Minnesota’s extra money be spent?

ST. PAUL — Minnesota’s Republican-controlled Legislature and Democratic Gov. Mark Dayton will have more money to haggle over in the new budget, after state budget officials announced Tuesday that the projected budget surplus has grown to $1.65 billion.

Top lawmakers had expected a $1.4 billion surplus, based on December estimates, but both sides have largely been in a budgetary holding pattern since the session began in early January. Though widely heralded as great news, Tuesday’s latest estimate again revealed a massive divide between how the two parties want to handle the extra money.

Should they put much of it toward tax relief, as Republicans signaled is their priority? Or do they put extra money into education programs and other priorities, as Dayton and fellow Democrats have suggested?

But beyond the tax cuts and credits, newly proposed programs and other priorities the Legislature will jostle over before adjourning in May, there’s an X factor for lawmakers to consider: How will President Donald Trump and a Republican Congress handle health care, trade and other areas? And how will it affect Minnesota?

State budget officials said it was too early to say and offered little guidance to lawmakers for how to prepare for unforeseen costs other than to be cautious.

“To the extent that you are concerned about things happening that you don’t know about, it always makes sense to leave money on the bottom line,” Minnesota Management and Budget Commissioner Myron Frans said.

Stronger-than-expected income tax collections buoyed the surplus, which budget officials said helped offset some slight cost overruns in public schools and health care programs. But four straight years of hefty budget surpluses have proven that extra money to spread around doesn’t ease the task — especially when power is split at the Capitol.

In the Legislature’s last budget-setting year of 2015, House Republicans clashed with Dayton and the then-Democrat controlled Senate, requiring a June special session to finalize budget bills that met Dayton’s veto pen. With the GOP now in control of the Senate, Republicans could push Dayton even farther, as in 2011 when they deadlocked, prompting a 20-day state government shutdown.

Dayton had already fleshed out his own budget proposal, and the stronger surplus could embolden the governor to push harder for early childhood education and a statewide public health care option — two of his flagship goals laid out in his January State of the State address.

In all, Dayton has called for a nearly $46 billion two-year budget, a 10 percent increase from the state’s current budget. He said he’ll retool his budget sometime in mid-March.

Dayton said it was “hard to quantify” how much money the state should consider setting aside as a buffer for federal changes, like the possibility that a repeal of the Affordable Care Act could leave states with a greater share of health care spending on public programs. He noted that the state has more than $2 billion socked away in budgetary reserves.

Of the federal government’s direction on health care and other issues, Dayton said: “We may have a better idea by the time we have to finalize the state’s budget in May.”

Though they noted the federal uncertainty, legislative Republicans said cutting taxes remained their top priority. They’ll spend the next several months deciding how much of the $1.65 billion surplus they’ll devote to an unspecified package of tax credits and cuts.

House Speaker Kurt Daudt said the growing surplus was a clear sign that the state has overtaxed its residents. The Legislature and governor failed to agree on a tax bill in both 2015 and 2016.

“We can’t let it go another two years without reinvesting back in Minnesotans,” Daudt said.