For the first time in years, Minnesota had some great news in an economic forecast:

The 2011 fiscal year closed with revenues $358 million higher than expected and expenditures $205 million below prior estimates. Projected revenues for the 2012-13 biennium are expected to be relatively unchanged and projected expenditures are anticipated to be $348 million less. The combination of these factors yields a projected $876 million balance. The majority of projected expenditure reductions are accounted for in the Health and Human Services area. [Emphasis added]

We have Governor Dayton to thank for the state’s decreased expenditures, according to the November forecast [PDF]. Opting-in early to an expanded Medicaid program — Dayton’s very first Executive Order — continues to pay big dividends. The Governor’s first decision in office continues to be one of his best.

Okay, enough patting ourselves on the back. In reality, there are still a number of reasons for caution. Our economic situation is very fluid, and that extra money could easily disappear quickly. I don’t want to appear overly pessimistic, but here are a few reasons why we shouldn’t touch any of that surplus money yet:

1. The February forecast is more important

Each year, we have two economic forecasts — the November forecast, which allows legislators to start planning for the upcoming session, and the February forecast, which provides the “official” numbers for them to work with. The global economic situation is still poised on a razor’s edge, and it wouldn’t be unthinkable for our gains to disappear by the time the next forecast comes out.

2. Revenues are decreasing again

While we posted good revenues this year, the forecast doesn’t expect them to continue that way. In fact, by the end of the 2012-2013 fiscal biennium, forecasters expect our revenue to be less than was forecast last year:

Typically, when actual revenues exceed projections, the forecast for future revenues increases… Only if the expected future  growth rate is well below that assumed in the prior forecast is a significant increase in the base unlikely to produce an increase in forecast revenues. This is one of those times…. revenues for the 2012-13 biennium are now projected to be less than forecast in February despite the additional revenues received in fiscal 2011.

That should worry our policymakers enough to hold off on doing anything with this new money.

3. Is the forecast overly optimistic?

Most economic forecasts I’ve seen nationwide recently have been overly optimistic, with economists continually surprised by how slow the recovery has been. It makes me nervous that the downturn in revenues in the November forecast will happen sooner than expected, and more sharply than expected.

I don’t have any real basis for claiming that it is too optimistic. I’m not an economist. But given how many economic forecasts seem to be underestimating the damage to our economy lately, it can’t hurt to play it safe.

The bottom line

The November forecast brings excellent news, but let’s not count our chickens before they’re hatched. Under no circumstances should we spend this money in the next legislative session. There are simply too many uncertain variables right now. We should hold onto the money for now. At the end of the biennium, if we still have the surplus, it should go toward repaying our schools.