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How well is Minnesota state government prepared to weather a COVID-19 recession?

The closed chambers of the Minnesota House of Representatives.
MinnPost photo by Peter Callaghan
The closed chambers of the Minnesota House of Representatives.

There’s never exactly a good time for a major fiscal crisis. But if one is coming for the state of Minnesota, now isn’t the worst time.

After a record-breaking economic expansion — ended by the COVID-19 outbreak — Minnesota has a record-high rainy day fund, a $1.5 billion surplus and an unemployment insurance trust fund that tops $1.5 billion.

A state-by-state analysis by the Pew Charitable Trust shows that Minnesota is, of course, above average when measuring the size of state rainy day funds and slightly above average for all reserves. The trust compared the funds by determining how many days a state government could last on reserves only as a way of accounting for differing sizes of state governments, since a billion dollars lasts longer in Montana than California. Minnesota could last for 48.6 days, while the national average is 48.1 days. 

Last October, Pew had given Minnesota relatively high marks for its ability to withstand a recession. At the time, it looked at reserves, rainy day funds, pension systems and the state’s ability to restore cuts made during the Great Recession. 

The test of that resiliency is coming sooner than expected. States have begun tapping reserves to respond to public health requirements from the coronavirus outbreak. According to an analysis by the National Association of State Budget Officers, every U.S. state and territory has appropriated some new funds for the crisis response

The good news is most states have healthier rainy day funds than before the 2008 Great Recession. The bad news is that the savings were set aside to prepare for a “normal” recession, not an event like a global pandemic. The impact of federal stimulus spending is not yet clear, and raising revenue during a recession is both unpopular and, in some circumstances, not permitted. 

Minnesota has appropriated $21 million for a public health emergency fund and $200 million for hospital and health provider grants, while Gov. Walz’s supplemental budget asked to spend $346 million of the surplus. Taken together, the reserve would drop to around $760 million and fall lower still as additional COVID-19 related expenses mount. 

That is gone now, Walz said of the surplus on Friday on WCCO radio. There will not be a surplus. I think what most people understand it will not be unusual to see that be at a deficit because of the recessionary pressures upon us.

The current reserves also do not take into account what will likely be a decline in state revenues as a now-predicted recession hits the state economy. “There’s no question that revenues will continue to drop as we watch them, although we don’t have a lot of good evidence yet,” said Myron Frans, commissioner of the state Office of Management and Budget. “They will continue to be dropping and at the same time expenditures are likely to go up. Whenever you have an economic disruption like this, demand for services goes up.

Commissioner of Minnesota Management and Budget Myron Frans
MinnPost photo by Peter Callaghan
Commissioner Myron Frans: “So the revenue stream’s coming down, the expenditures column is going up and they’re gonna meet at that place where we have a deficit, we just don’t know when.”
“So the revenue stream’s coming down, the expenditures column is going up and they’re gonna meet at that place where we have a deficit, we just don’t know when,” Frans said.

OMB last week received an updated economic projection from a consultant that told the agency that, though “uncertainty is high” about all the ways COVID-19 will impact the economy,  it “now expects a U.S. recession beginning in the second quarter of this year and continuing until the end of the year and a recovery to begin in the first quarter of 2021,” MMB said last week. 

Walz had begun the year asking lawmakers to reverse a budget maneuver used to help balance the budget passed last year. Since the following biennial budget needed to stay in balance, the 2019 budget deal committed $491 million of the state’s existing rainy day account to showing that the next budget was not in a deficit. That means the current rainy day account of $2.36 billion — equal to 4.9 percent of the state’s two-year tax collections — will drop to $1.867 billion on July 1, 2021.

Any hopes of refilling it though are being dashed by the expected downturn from the coronavirus.

Another fund that gets less attention, at least until recessions begin, is the state unemployment insurance fund. “The trust fund is in really good shape,” said state Department of Employment and Economic Development Commissioner Steve Grove. “There’s about a billion and a half dollars in it. We’re in good shape there and don’t think there will be a general fund need.”

The fund is filled with a payroll tax on employers and is tapped to pay jobless benefits when workers lose jobs. The state has already expanded eligibility and has already seen a spike in applications: 72,245 by the end of the day Wednesday; the same week a year ago drew 2,100. The state is urging residents to apply on-line if possible at

DEED Commissioner Steve Grove: “The [unemployment insurance] trust fund is in really good shape.”
MinnPost photo by Peter Callaghan
DEED Commissioner Steve Grove: “The [unemployment insurance] trust fund is in really good shape.”
Grove said Wednesday the state has begun to model how long the fund will last based on various usage scenarios. If the state sees 120,000 new applicants over the next 12 weeks, the fund would go down by one-third. If it sees 300,000 applicants — which would equal to a 10 percent unemployment rate in the state — the fund would be completely tapped at the end of 12 weeks.

The feds have, in the past, come in to refill state unemployment trust funds when they are drained by longer-lasting downturns. And those who are still employed add money to the account while jobless workers are tapping it. “As a whole, Minnesota is in good shape compared to many of our neighbors,” Grove said.

Comments (3)

  1. Submitted by Dennis Wagner on 03/20/2020 - 01:27 pm.

    We hope that folks will finally get it through their head, It is better to have spare cash in good times than no spare cash in the bad times. Rainy Day/emergency funds are just 101 good common sense thinking, for everyone, including governments. Now, you look at our friends in DC, we were juicing the economy by > $1T during the best of the best of the best of times, and now, they are talking about another ~ $1.5T ++ on top of that, along with the FED emptying every tool from there tool box, They kept juicing the economy long after they should have, call it executive pressure every time the market hiccuped. Next problem? inflation with high unemployment (opposite ends of the economy pulling in opposite directions) You juice the economy to get folks employed, and that fuels inflation, Raise interest rates to cool the economy, that increased unemployment.

  2. Submitted by Joel Stegner on 03/24/2020 - 02:03 pm.

    The state is spending a lot to take care of seniors, who face tge greatest risk from the virus. I am glad that calls for taxation of Social Security have ended for now. It is time for those who are in retirement focus less on demanding special tax treatment and more on we can do to slow the pandemic. Some suggest we get sick and die to help the economy. Do they seriously think that will not run up huge healthcare costs, as we don’t let people have inexpensive deaths. Better yet to spend our money on jgger things, to keep the economy going, and avoid exposure until we have a treatment. By picking up more responsibility and demanding less for ourselves, we lower budget deficits and their impact on our children and grandchildren.

  3. Submitted by kaimay terry on 03/24/2020 - 04:14 pm.

    Never feel so good as a Minnesotan. A sane government. And citizens who understand the benefits of a robust economy and the discipline to save for a rainy day.
    Now POTUS wants to get back to business as usual by Easter to stop our economy from hemorrhaging. But may add more to the death toll.
    Instead of taking extreme measures maybe tech giants like Google, Apple can use GPS technology to in real time show where the Cases are as reported by health workers via our I phones or cars ( restaurant near you) So cities, counties with high concentrations of cases will and should have much tighter restrictions of movement compared to the low or zero case towns, suburbs…And we citizens will avoid the high risk hot spots. There can be more creative solutions to balance public health interests and economic meltdown down
    Kaimay Terry M.P.H. (Johns Hopkins Bloomberg School of Public Health)

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