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Why is Minnesota's budget guru so worried?

Management and Budget Commissioner Myron Frans
MinnPost photo by Briana Bierschbach
Management and Budget Commissioner Myron Frans: “We have a balanced budget. But boy, it’s really, really skinny right now.”

Myron Frans likes plenty of wiggle room. 

As the state of Minnesota’s top budget official, he’s constantly monitoring the state and federal economy. For the last several years, things have been going well in Minnesota, with a low unemployment rate, a diverse economy and a relatively flush state budget. After a decade of deficits, legislators had surpluses to spend during the last two budget years.

But there’s not as much room for error these days. And as an obsessive budget watcher, that makes Frans uncomfortable. “We have a balanced budget,” said Frans, who’s been the Minnesota Management and Budget commissioner since 2015. “But boy, it’s really, really skinny right now.”  

Several things are happening that concern Frans. One is that two monthly revenue reports in a row show income tax collections coming in lower than expected. The state is currently collecting about $104 million less in revenue than it anticipated for 2017, mostly due to overly enthusiastic predictions, Frans said. 

The second source of concern is the $300 million transportation funding bill and the $650 million package of tax cuts included in the most recent state budget deal. Those bills gobbled up much of a $1.65 billion budget surplus, and they will only get more expensive down the road. By Frans’ estimates, the tax bill will cost $790 million in the next budget, and the transportation bill will cost $448 million. That, plus more spending for K-12 and early education, transformed a projected $2 billion surplus for the 2020-2021 budget cycle down to a $386 million surplus, according to figures from his office. 

But the biggest unknown is the thing Frans and other state officials have the least ability to control: what the federal government will do. 

Everyone’s waiting to see if Republicans in control of Congress will repeal the Affordable Care Act, which state officials estimate could blow a $2 billion hole in Minnesota’s budget by 2021. And that doesn’t include some of the other, non-healthcare related budget cuts proposed by President Donald Trump. Frans has a pages-long list of the most potentially problematic ones, and his office is still trying to tally up just how much funding it could mean for the state. 

It’s an uncomfortable situation, Frans said, because he remembers what it was like when the state’s economic picture wasn’t so pretty. He was appointed by Gov. Mark Dayton as Department of Revenue Commissioner in 2011, when lawmakers were facing a $6 billion budget deficit.

His boss, Dayton, is heading into his final year in the governor’s office and is determined to leave the state’s budget picture much prettier than when he walked in. He’s so determined, in fact, that he vetoed the entire budget for the Legislature after the 2017 session ended in May. The point of the veto was to try and bring legislative leaders back to renegotiate the tax bill, which Dayton worried was too costly in the years to come (Dayton signed the tax bill, he said, because of a provision in another bill that would have defunded the Department of Revenue without passage of the tax package).

Legislators weren’t persuaded. They sued Dayton over the veto, a legal battle that’s still working its way through the courts. 

So then what? Frans said there’s a lot of watching and waiting. Will Republicans in Washington D.C. manage to repeal the federal health care bill? How will the judge rule in case against Dayton’s veto? What will happen with the national economy and how will that trickle down to Minnesota?

There is one thing that gives Frans some comfort: Minnesota’s $2 billion in budget reserves. It’s been slowly building over the years and is now one of the largest reserves on hand of any state in the nation. But it’s specifically set up to help the state in the event of another major economic downturn, Frans noted, not necessarily to backfill billions of dollars in lost federal funding. 

There’s still $163 million unspent from the last session, but that’s mostly due to the fact that Dayton nixed the budget for the Legislature. If that’s completely restored, only $50 million is left, but most are expecting about $43 million of that total will be used next year on a pension reform package. That leaves just $7 million of a $46 billion budget.  

“It’s an interesting line to draw because, on one hand, the economic fundamentals are good, both for the nation and for Minnesota because our economy is so diverse here,” Frans said. “The economic fundamentals are good, but because of the uncertainties at the federal budget level, we do feel like we are closer to that line of teetering away from structural balance.”

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Comments (7)

More of the same....

Looks like we will have to raise taxes on the rich so we continue to have "huge spending increases."

Rhetoric Is Fun

But I prefer facts.

Please tell me more about these "huge spending increases." As a percentage of state GDP, over the last 10 or 20 years, has state spending gone up or down?

Older folks require more government support than younger ones. Is the number of aging Minnesotans increasing, decreasing, or staying the same?

At the U of M, has the share of the expenses paid by students and their families gone up, gone down, or stayed the same over the last 30 years? Oh wait, I actually know this one. When my small government conservative brother-in-law went to the U in the early 80's, he paid only about 30% of the cost. Today he'd pay over 50%.

It is fun

Why compare to state GDP? Why not just make it simpler to straight spending. In 2007, the state spent $21.2 billion. In 2017, we are slated to spend $30.7 billion. That's a 45% increase. How many people can say in 10 years they get a 45% increase in their personal finances?
You say older people need more support. That much is true. Then priorities need to be aligned. Just because there are more people that need assistance does not equate for taking more from the people who provide the taxes.
For students who pay more as your numbers state is because the costs of college are out of whack due to the overly generous subsidies and loans. Universities know the money is coming so it is not as difficult a task for them to raise fees. Again, a government problem.
So instead of electing people to make the tough choices, many like our governor are elected to just raise taxes as their answer. That's not leadership, that's theft.

% of State Gross Domestic Product

The budget as a share of State GDP is relatively stable, using some napkin math, in millions of $:

Year GDP Budget % of GDP
2007 $258,917 $17,000 6.57%
2008 $264,299 $17,000 6.43%
2009 $258,166 $15,000 5.81%
2010 $269,937 $15,000 5.56%
2011 $282,397 $16,000 5.67%
2012 $292,920 $16,000 5.46%
2013 $304,063 $20,000 6.58%
2014 $316,973 $20,000 6.31%
2015 $326,833 $21,000 6.43%
2016 $335,147 $21,000 6.27%

Apples to Apples

Mr. Petersen, are you using constant dollars? To compare 2007 dollars to 2017 dollars is worthless. The cost of a rebuilt lane mile of highway or filling a pothole did not cost as much in 2007 as it does today. Same for health insurance benefits for a highway patrol trooper.

I don't know anyone who would be content to earn the same annual income today that they did in 2007.

Alternative facts check

If you look at the undergraduate tuition history of the U of M you'll see it was $213 per year in 1960.

After 40 years of Universities knowing the money was coming and, as you imply, raising tuition like the thieves they all are, that year of education at the U had risen to $4,100 in 2000.

That "government problem" you're talking about amounted to a $3,900 increase over FORTY YEARS . . . an average of less than $100 per year.

You may remember the days near the end of the Clinton presidency when the economy was booming so big that MN was running surpluses that made our recent surpluses look a little puny.

You may remember that those were the days of Jesse Check direct tax refunds and billions of dollars in permanent cuts to all KINDS of MN taxes.

You may remember how, the story went, those tax cuts were going to blast the MN economy into the stratosphere of economic growth -- business expansion, more and better paying jobs, etc. -- that would generate soooooooo much state revenue that it wouldn't be long before the cost of an education at a place like the U of M would be the next best thing to free or, because people would be making so much money, it would be irrelevant.

But that was all going to happen in the "near future." While we were waiting for it to materialize Jesse and the legislature seemed to share your perspective and made some higher education cuts (to help speed things along?) and the yearly cost went from $4,100 at the beginning of Jesse's term to $5,700 in 2003 when he left and Tim Pawlenty took office.

A $1,600 per year increase in four years.

Under the eight years of Pawlenty's iron-fisted conservative watch it rose from $5,700 to $11,000 in 2011 when Tim (finally) went away and Mark Dayton came in (to begin dealing with the SIX-POINT-TWO-BILLION DOLLAR deficit conservative fiscal management had created).

So let's see . . . When that "government problem" was happening, the cost of a year's worth of U of M education rose $3,900 in 40 years.

When Jesse Ventura's, Tim Pawlenty's and conservative's solution to that problem was implemented, the cost of a year's worth of U or M education increased $7,000 in TWELVE years and led to students graduating with an average of $31,000+ in bankruptcy-proof debt.

(A whole lot of that debt is owed to the financial services industry, by the way. The industry that is now paying Tim Pawlenty right around $2 million per year to lobby for it in Washington -- see: Financial Services Roundtable president and CEO).

$3,900 increase in 40 years under the "government problem" plan versus an increase of $7,000 in 12 years under the "conservative solutions" plan.

Which plan worked best?

Which plan was the most fiscally conservative?

And while I don't know what formula you use for identifying the leaders and thieves, you might want to double-check to see if there's a bug in it somewhere.

Or

We could quit giving tax breaks to wealthy individuals, many of whom neither create nor spend, instead make money off financial dealings which add nothing to GDP.