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Legislative News and Views - Rep. Dale Lueck (R)

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Legislative update

Friday, May 08, 2020

Dear Neighbor,

The fishing opener and Mother’s Day makes it official: Spring as arrived. Please thank those special moms and grandmas for all the wonderful things they do. Happy Mother’s Day!

The Minnesota Office of Management and Budget (MMB) recently issued an interim budget report projecting a $2.4 billion deficit.

I am skeptical as to the accuracy of that projection. MMB assumes an extremely rapid and robust recovery that quickly returns Minnesota to almost full employment and almost full generation of state sales tax and income tax revenues.

While we all hope and pray for a quick recovery that assumption along with many other speculative assumptions form the basis this MMB projection, unknowns include:

  • Ultimate path and length of the pandemic
  • Number of businesses that will survive and reopen
  • Consumer spending and business confidence
  • Impact of federal fiscal & monetary policy
  • Delays in state tax revenues
  • Extent of federal support programs

The February forecast projected a $1.5 billion surplus. Roughly two months later, the forecast projects a $2.4 billion deficit. What caused the $3.9 billion swing? Two items: (1) a huge decrease in state tax revenues caused by the shut-down, and (2) new unplanned state spending necessary to fight the pandemic.

Today, 613,216 Minnesotans are unemployed. The shutdown has destroyed the February unemployment rate of 3.1 percent, and unemployment is now at roughly 25 percent. The legislature has authorized well over $500 million in new emergency spending to fight the pandemic.

Whether accurate or not, a projected shortfall allows the governor to access the $2.359 billion budget reserve. It seems more than a coincidence that the projected deficit is $2.4 billion and the balance in reserves is $2.394 billion. I certainly believe MMB is correct in projecting a shortfall. However, I remain skeptical that the $2.4 billion number is telling us the rest of the story.

This is the first indication of what the shutdown has cost the state treasury. It’s a bit too early to assume we are roughly at a break-even point with reserves magically equaling the shortfall. Before we make that kind of assumption, we need a more accurate understanding of how deeply the economy has been wounded by the shutdown.

Until that picture clears up, I am going be very cautious about authorizing new state spending, unless it directly relates to getting the pandemic under control and moving our economy forward.

Please be safe on the water.

Sincerely,

Dale

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