Deficit? What deficit?
Minnesota’s economist released the official November forecast of state revenue and spending on Tuesday, and it offered better news for a governor and state Legislature seeking ways to help businesses and individuals hurt by a second round of pandemic-related closures.
What had been a $2.42 billion deficit when Minnesota Management and Budget, the agency that oversees the state’s finances, last took a look at the economic impacts of COVID-19 has turned into a $641 million surplus. That’s on a base two-year budget of $48.4 billion.
“Minnesota’s economic and budget outlook have improved since May, when we released a budget projection just as the COVID-19 pandemic was taking hold,” MMB reported Tuesday. “With this forecast, higher general fund revenues and lower expected spending result in a projected surplus of $641 million for the fiscal years 2020-21 biennium. The improved budget outlook continues into fiscal years 2022-23, but a $1.273 billion budgetary shortfall remains for that biennium.”
That look into the two-year budget that begins July 1, 2021 is a vast improvement over the summertime-estimate of a $4.7 billion deficit. And it is well below the state’s current rainy day savings account of $2.36 billion.
Another way to look at Tuesday’s relatively positive Minnesota revenue news is to skip the May forecast, which was an educated guess at best. Compared to the February forecast, the state has gone from $1.51 billion surplus to $641 million surplus — a loss of $870 million. And the 2021-23 budget has gone from balanced to a $1.273 billion deficit. So, the recession is projected to reduce state tax revenues by close to $2.15 billion.
The state will release more detail on the economic forecast later Tuesday. That will be followed by reaction from Gov. Tim Walz and legislative leaders of both parties.
Fourth budget picture in 12 months
Tuesday’s official forecast of the state’s revenue and budget picture is the fourth in 12 months, and it reflects another wild swing in the numbers.
One year ago, state economists estimated the current two year budget would end with $1.33 billion in surplus, based on a budget of $48.3 billion. That surplus jumped to $1.51 billion in February, even though the threat of a pandemic was noted in the forecast as something to be concerned about.
In May, the state office of Management and Budget took a stab at updating the February numbers using more-limited data and best-guessing the fiscal impacts of shutdowns that had just begun. It was then that the state said the $1.51 billion surplus had transformed into a $2.42 billion deficit.
Since the start of the state’s fiscal year on July 1, however, tax collections have been better than estimated — $805 million better. Those numbers, which account for money in the bank versus forecast revenue, fed speculation that the forecast released today would be an improvement.
Lawmakers looking to help businesses
Usually, the so-called November forecast in even-numbered years is the starting point for political sparring, as it comes prior to lawmakers drafting the two-year state budget the following spring. This year, however, it is being used to support new spending to help businesses harmed by the second round of closures ordered last month.
Monday, Walz said there are ongoing negotiations between his staff and legislative leaders about a COVID-19 relief package for businesses hit by the second round of closures and restrictions.
Last week, both legislative Republicans and DFLers released plans to get financial help to businesses like restaurants and gyms that were ordered closed to limit exposures.
“I want to thank the legislators, they worked over this weekend. Different ideas are now being vetted out as what’s acceptable. This is pretty normal procedure,” Walz said Monday. “This process will accelerate itself after tomorrow’s budget forecast numbers come out. That will give everyone a much better starting point for where we’re at fiscally and what we can do in this process.
“I’ve said, once they’re ready and once we have an agreement I’ll call them back and we’ll get this done.”
Walz said such a session could possibly happen as soon as this week.
Disparate impact
The more-robust tax collections in July, August, September and October suggested an improved November forecast. That it was a surplus was a surprise, however.
The explanation in October for better-than-expected tax collections was that the pandemic recession was hitting Minnesotans differently — and disparately. Those in service jobs most impacted by shutdowns were doing poorly, especially when enhanced unemployment payments expired in July. But many others did not see income declines.
“If someone said tomorrow that the budget deficit was not going to be there, I could believe that. I don’t believe the numbers have been cooked,” said John Phelan, an economist with the conservative research group Center of the American Experiment. “When I say it’s incredible, I mean if I could put myself back to March or April or May, if you’d have told me then that we were going to emerge this year without a budget deficit, I would have wondered what you were drinking.”
The Center called on any deficits to be resolved without tax increases, arguing that state taxes are already high in comparison to other states. And Phelan said he thought there were still grounds for tax cuts even if the deficit isn’t as deep as forecast in the spring.
But the Minnesota Budget Project, an arm of the Minnesota Council of Nonprofits, said the impacts of the recession not only fell more harshly on lower income residents but that those impacts were softened by state and federal government spending that has since ended, or will end by Dec. 31.
“Policymakers will need to continue to fund many of the critical supports and public services for the workers, families and children, and others who have been harmed by the pandemic and subsequent recession,” the project said Monday.
A challenging year for forecasters
This year has been a challenge for state economists. At the time of the February forecast, the document used by the Legislature to draft budget and tax changes, COVID-19 wasn’t seen as a threat large enough to impact the numbers. Then-Commissioner of Minnesota Management and Budget Myron Frans called coronavirus “a dynamic situation that changes daily” but said all forecasts have unknowns. “These numbers always have an asterisk on them.”
But the state was considered to be well-placed to weather a downturn, It had a $2.36 billion rainy day savings account — the largest permitted under state law. It also carries a $350 million reserve fund for less-severe ups and downs in tax collections and spending.
Those savings, however, would have been overwhelmed by the May deficit projection. And that is just for the current two-year budget. The state estimated that the recession would also put the next two-year budget period, beginning July 1, 2021, in a $4.7 billion hole.
Every single penny should be split between all of the businesses that Walz has shut down yet again. They never really recovered from last March. This man should be ashamed of himself.
If the Governor is incapable of spending the rainy day fund for the worst pandemic in 100 years, maybe there shouldn’t be a rainy day fun. Earth to Walz, it’s raining.
You are aware that the legislature is primarily responsible for determining how to spend the state’s revenues, not the executive?
Walz still has Executive Power. The Legislature is meaningless.
“The more-robust tax collections in July, August, September and October suggested an improved November forecast.”
Taxes raised the money, a lot of money, during this “Trump economy in the tank”. Hopefully the Biden administration can continue this “poor economy” during the pandemic. Although, the media is already claiming that the stock market boom is because President-elect Biden is almost in the White House.
What, now we’re denying that the US experienced a severe recession in 2020? That 2020 was “actually” an extension of that Great Trump Economy?
As for the idea that “taxes raised a lot of money” in 2020, you perhaps missed the part about the Trump recession reducing state tax revenues by a projected $2.15 billion. It’s also not clear what the Trump recession overhang will mean for the next (2021-23) budget, which had been (earlier) estimated to be “a $4.7 billion hole”. So yes, we are currently in a “poor economy” for everyone not heavily invested in the stock market….and without the sizeable rainy day fund (as a result of sensible tax policy), the state would be doomed.
There was a recession, then recovery that raised a lot of money reducing the projected deficit for the State. Money raised by taxes. Taxes which are of course paid mostly by people with greater incomes, which is what we all want. Less deficit balanced on the backs of the “rich”. Win-win for everyone.
The present Trump recession that you refer to showed economic growth of over 3% the last quarter I believe. And we now find out that unemployment numbers have been greatly exaggerated according to the GAO.
Its not so much Biden winning that has boosted the market of late. Its that Trump’s lies and pathetic attempts to undermine the election have failed and that there is some certainty about the future.
The stock market is not the economy, of course. When you run up record deficits pumping money into corporate America, the stock market will rise, and main street and the people who work there will suffer.
This is what happens when you elect a businessman who knows nothing about business. A trust fund kid who squandered his massive inheritance running business after business into the ground.
Perhaps the news about vaccines have something to do with the stock market rise and certainty. Naw!
All government spending originates in the House, any deficits start there as well. President Trump signed the bills into law passed by the House and Senate so my math says that President Trump is 1/3 responsible for the deficit spending. Same as President Obama was responsible for the increase in the national debt during his 8 years in office. I doubt that President Biden will have any luck reducing the national debt either, but it is possible and I give him the benefit of the doubt.
Let’s give the President-elect a chance shall we? We have a few years to see how the market does under President Biden, once he is the President. In the meantime, enjoy your 401K.
And I lost everything.
Paul Krugman, Nobel Prize winner, said the same thing about President Trump. Hopefully President Trump is wrong too, although it is unlikely that he will be as wrong as Krugman.
Thank God that in these times, we are not still living in the regressive Pawlenty administration.
‘Too little Tim’ and his like legislators did their best to turn this state towards the dark ages and make it into a clone of So. Dakota.
Thanks to Gov. Walz and the progressives in the capital, Mn returned governing back to respectability.
Walz picked up the ball that Trump and his party dropped with Covid and, without state republican help, has done as much as any other state has done to salvage what can be with the health of the citizenry being the focal point. Those state senators and others who value money more than citizens’ lives have now, all of a sudden, disappeared along with their shallow second guessing.
Minnesota has one of the highest rates of Covid per 100,000 population than any other state. So it seems that this continued shutdown hasn’t made any difference at all. Except to the businesses that have gone, and will continue to go bankrupt.
As long as he allows big box stores to stay open at 100% capacity, he is a hypocrite in my opinion. He knows if he shut down big box retailers there would be a massive outcry. Politically more expedient to close small biz. It makes it look like he’s doing something.
Those small businesses deserve to be made whole with this 641 million “extra” money.
Apples to apples Betsy. Small hardware stores, small clothing stores, etc. ARE open and doing business.
There are no as you put it ‘big box’ cafes and bar/grills in Mn… or elsewhere.
Covid spreads in bars and cafes that do not enforce masking and distancing. Thanks to your Trumpers for not cooperating with that… hence, restrictions which affect you, me, and the violating Trumpers.
Mystic Lake, Treasure Island, Northern Lights, etc, are fully open, as are their restaurants, and they are doing a brisk business.
The recent shutdown was in response to the spike in cases in Minnesota.
But Ms. Larey, conservatives LOVE big box retailers, they love the low wages they pay their employees, the low prices they pay their wholesalers, and the low prices they charge consumers. It allows them to pay their investors more money. The entire basis of conservative economic theory is reducing input cost to maximize profit, no matter the consequences. YOU have destroyed small business, long before COVID, all the pandemic has done is hasten the demise, brought on first by discount retail, and more recently by online retail. Small retail is dead, you killed it and it won’t be returning. As for services, there will restaurants, there will be gyms, there will be entertainment, if and as the demand for those services returns. It will probably be provided by new entries into the market, which is how capitalism works (or so its been explained by conservatism), and those who fell victim to the risk they took on prior to the natural disaster our society experienced will need to exercise personal responsibility and pick themselves up and start again. This again, is conservatism 101, its strange that conservatives are so quick to abandon their bedrock principles at the slightest hint of adversity.
Actually, it is quite the opposite.
Some people are just impervious to facts and information.
Walz has nothing to be ashamed of, he’s been handling the pandemic crises better than most governors around us. If you STILL don’ t know the difference between retail environments and restaurants, bars, and gyms, you’re simply not trying to understand the scenario. This has all been explained repeatedly for months now. No one is picking on certain businesses, we’re just recognizing reservoirs of transmission and shutting them down, that’s how you deal with novel viral infections when you don’ have any immunity, cures, or vaccines. Walz has been trying to target those scenarios that have revealed the highest levels of transmission and outbreaks over the last several months, and the FACT is that retail settings have not emerged as high transmission environments, whereas gyms, bars, and restaurants HAVE emerged as hot spots of transmission, with dozens of outbreaks over the summer months, building to the 2nd wave of infection we’re dealing with now.
To the extent we’ve seen a surge in MN, it is precisely because Walz let restaurants, and bars, and gyms open, as well as lessoning restrictions on weddings and other gatherings. If Walz has made any mistakes it’s been his attempts to accommodate business owners and Republicans constant demands for less restrictions, and more virus transmission.
If anyone really wants to “save” businesses, small or otherwise, they’d stop demanding to be sources of outbreaks and reservoirs of transmission. The only way to save the economy is to knock out the pandemic, not kill and infect more customers. We tried opening these businesses, we got a huge second wave of infection, illness, and death for our efforts.
Any serious analysis of MN compared to our neighboring states reveals that MN has fared better. We were in the middle of a hot zone surrounded by states with some of the highest COVID fatality rates in the world for a couple weeks. There is no invisible force field keeping the viruses on the other side of a state border so it’s just matter of time before the wave from neighboring states sweeps into our state. Again, if Walz made mistakes, it was in failing to shut down more comprehensively and sooner. That “mistake” was driven by attempts to compromise with these people who are now demanding special consideration and assistance. Whatever.
By the way, yeah, this is really good example of the difference between Republican fiscal “responsibility” and actual fiscal responsibility. Republicans create fiscal crises and deficits in ALL scenarios under the incoherent assumption that any budget surplus tells us we need to cut taxes because we’re over-taxing. Had Republicans been charge of our state budget the deficit crises Dayton inherited would have continued indefinitely and our state forecast would be just as disastrous as the federal budget Trump and McConnel have produced. We would have come into this crises with a deficit that would have grown and doubled and tripled during the Pandemic.
This is why surpluses are better than deficits, when you don’t start out at the bottom of a hole, it’s a lot easier to climb out or stay out, and your hole is a lot shallower in any event. One would think that anyone professing to be an expert in fiscal responsibility would be aware of this simple fact.
Well Paul, as us (fiscal conservative lefties any how) say over the kitchen table, better to have money in the savings account (@ 0% interest) than debt on the credit card (@ 29%)! Just saying makes financial sense in our household.
Yeah, and now that I think about it, didn’t Republicans want a sales tax holiday in one of their budget proposals? Had they gotten it, they would have eliminated the source of this surplus and guaranteed another deficit.