Good morning. A budget forecast and a rebate lookback are top of the news today. 

Uncle Sam is taking a cut of Minnesota’s tax rebate. Minnesota Revenue Department officials have gotten final word from the IRS that they consider the $260 per person rebate — up to $1,300 per household — federally taxable. It will require people to pay a chunk of that when filing 2023 taxes. How much? That depends on several factors, but in the range of $26 to $286 (on a multi-person rebate) for filers who have a federal tax liability. Do the math and it’s a $100 million or more transfer of money from the state to the feds out of a $1 billion rebate pot. Revenue Commissioner Paul Marquart told me his team and lawmakers tried to shield the payments by mirroring states that previously won exemptions, but the IRS didn’t agree. “It’s certainly disappointing,” Marquart said.

It’s budget forecast day — the tone-setter for the 2024 session. MPR’s Dana Ferguson says we’ll get the topline news midmorning and finance officials are scheduled to hold a news conference to discuss their report at 12:30 p.m., followed by a parade of reaction from lawmakers about how to approach the findings. Recent revenue updates suggest that lawmakers will have more at their disposal next year than projected when the last big budget report was done in February. An October report showed the state would bring in roughly $2.4 billion more than anticipated — driven by higher collections of taxes and fees and lower than planned state spending.

Dana spoke with House leaders ahead of the forecast release. House Speaker Melissa Hortman said Democrats purposely left cash aside last year for a capital investment bill in case Republicans won’t support one. The state requires a higher threshold of support to take on debt, which means that Democrats need GOP buy-in to issue bonds to pay for projects. “If there is bipartisan cooperation, we would see a bonding bill in the nature of $1.7 billion or so. And if it is Democrats only that would like to do a bonding bill, then we'll have a state bonding bill in the neighborhood of $800 million.” House Minority Leader Lisa Demuth said the Legislature should focus on getting more money back to taxpayers. “So the things that are going to rise to the top are no more additional spending. And we have to look at some ongoing, permanent tax relief for Minnesotans.”

Democrats will retain a six-seat edge in the Minnesota House after a special election for a seat encompassing parts of Dakota County. According to unofficial results, area school board member Bianca Virnig prevailed with 58 percent of the vote in a low turnout election. She beat Republican Cynthia Lonnquist and Libertarian Charles Kuchlenz. There was one write-in , which takes dedication to the bit. Virnig will fill the seat left open by the resignation of DFL Rep. Ruth Richardson midway through her term. The outcome means the DFL will enter the 2024 session with a 70-64 majority. 

Minnesota will get its loon. The State Emblems Redesign Commission settled on a state seal design with the state bird at the fore. Dana (again) reports that the seal could still be fine-tuned some, but the unanimous vote yesterday was for a design depicting a loon taking flight from a Minnesota lake. The design also includes strands of wild rice, representations of forests and a star. “It’s obvious that all of us like that one,” said commission Chair Luis Fitch. Four other finalists were eliminated from contention. The state flag is still a bigger work in progress.

Moonlighting is contagious in the governor’s office. Lt. Gov. Peggy Flanagan announced yesterday that she’d been chosen to lead the Democratic Lieutenant Governors Association, making her the first Native American woman to lead the organization. Over the weekend, the Democratic Governors Association elected Gov. Tim Walz to serve as its chair. On X (formerly Twitter), Flanagan said some of her top goals in the role include lifting up the work of fellow Democratic lieutenant governors and flipping the independently elected North Carolina lieutenant governor’s office to Democratic control.