For more information contact: Chad Urdahl 651-296-5520
Minnesota Management and Budget issued the November state economic forecast on Tuesday, one of two complete snapshots of our economy the state releases each year.
The current forecast shows a $188 million projected shortfall for this biennium, which ends in June of 2019. An asterisk can be placed next to that dollar amount, however, since two particular assumptions used in calculating the forecast should change before the next full forecast is issued in February.
First, the forecast reflected $178 million in state spending on the federal Children's Health Insurance Program (CHIP), nearly all of which would be restored once CHIP is renewed at the federal level. We have received assurances that Congress is planning on reinstating this program, so if they had just done it by now the projected deficit would be $10 million, not $188 million.
Even more significantly, the forecast assumes that no tax bill will be passed at the federal level despite passage in both the House and Senate last week. The state economist had assumed back in February that there would be a federal tax bill, and that the economic activity that resulted from it would push up consumer spending and GDP, resulting in additional state tax revenues. Changing that assumption (at what appears to be just the wrong time) reduced the projected revenue for the state in this forecast.
Beyond those significant variants at the federal level, the forecast assumes 2.2 percent GDP growth in 2017 despite 3.1 percent growth in the second quarter and 3.3 percent growth in the third quarter. The outlook would be significantly more optimistic if our state performs even marginally closer to what it has in recent history than what was used in calculating the forecast.
Our state’s economic growth continues to be strong, with unemployment at a 17-year low and wages on the rise. The November forecast is helpful in some ways, but it also must be taken for what it is: an attempt to predict the economic future. The February forecast is the one that really counts because its data will serve as the Legislature’s official framework during the 2018 session. Much could change over the next few months and I expect the next set of figures will show even more growth in Minnesota’s economy.
In other news, a change of course has occurred regarding the error-plagued implementation and rollout of the new Minnesota License and Registration System (MNLARS). The private firm FAST Enterprises has been hired to rid the new system of myriad flaws and make it fully functional in time for the state to meet its October 2018 deadline for complying with new federal Real ID requirements.
Backlogs and errors have caused headaches for both citizens and DMV registrars throughout the state. A House committee met on Wednesday and heavily scrutinized state technology officials, who indicated a rollout of some fixes is expected later this month but added that full functionality for MNLARS is still a ways off.
FAST Enterprises has a good track record of successfully implementing driver and vehicle systems in a number of other states. The hope is the company can deliver solutions for our state, on-time and on-budget.
As always, please stay in touch and let me know if you have any thoughts on these or other issues as the Legislature prepares for the 2018 session.
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