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State Representative Bob Vogel

581 State Office BuildingState Office Building
100 Rev. Dr. Martin Luther King Jr. Blvd.
651-296-7065

For more information contact: Chad Urdahl 651-296-5520

Posted: 2017-12-07
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Legislative Update

Reflections from this week's state economic forecast


Dear Neighbor,

State finances have been a main subject of conversation this week after Minnesota Management and Budget released the November forecast on Tuesday, projecting a $188 million shortfall for this biennium, which ends June 30, 2019.

Before we dive into the details of the forecast, let’s note that, in general, Minnesota’s economy currently is healthy. The unemployment rate is the lowest we have seen in 17 years, and wages are rising. Our state’s economic growth continues to outpace the national rate and stronger revenue estimates are probable when an updated forecast is compiled in February.

As for the shortfall that is projected, this news calls for us to be mindful, but certainly is no reason for panic. It is a forecast, after all, and after running a small business for 40 years, one thing I know is certain – a forecast/projections has never become the exact number when the books are closed.

Actually, the February forecast will be the one that matters most because since it will serve as the official framework for legislative action in the 2018 session. Much could change between now and when we receive those updated figures.

For example, it is very possible federal issues which tempered optimism with our state forecast will be resolved by February. Minnesota’s forecast reflected $178 million in state spending on the federal Children’s Health Insurance Program, nearly all of which could be backfilled if CHIP is renewed at the federal level. In addition, our state forecast assumes that no tax bill will be passed at the federal level despite passage in both the House and Senate last week.

There are also a number of other variables at play in our economy. In its projections, MMB assumes 2.2 percent GDP growth in 2017 despite actual 3.1 percent growth in the second quarter and anticipated final 3.3 percent growth in the third quarter. This means there is a reasonable chance we achieve in the upper 2 percent, or even as high as 3.1 percent, which would bring the projection bottom line into the black all on its own. Of course it could go the other way as well and make things worse; it remains to be seen.

If the above sounds too much like an economist saying “if this happens I’m right, or if the complete opposite happens I’m also right,” please forgive me.  The curiousness of this budget projection seems there are quite a few more significant dollar amount items involved with the variables. Although it is safe to say there does not seem to be a whopping surplus or deficit pending, it does seem safe to say things will be different than when large surpluses were projected since there appears little chance of that going forward.

From my perspective, this does lead to unease because there are now longer-term structural issues to be faced, not the least of which is the projected health of Minnesota’s economy, and the state’s ongoing revenue vs. spending commitments. This is why I will continue working to upgrade guidelines for our state’s debt capacity to protect taxpayers from future payments on overzealous state borrowing and put in place a prudent/disciplined plan to deal with pension liabilities.

One silver lining in having a projected modest shortfall is that it gives pause to expenditure requests and will help tighten the reigns on government outlays during the upcoming session. Also, I came away from an economy-related meeting at the Capitol yesterday feeling as though legislators and the governor’s executives are ready to work together toward a prudent solution in 2018. All that, too, may change by February, but at least we can be optimistic now.

Until next time, the full budget forecast report from MMB can be found by clicking here. As always, your feedback is appreciated as it gives me an idea of what you are thinking on this subject and others.

Sincerely,

Bob

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