Hello from the State Capitol,
On Tuesday, the Minnesota Management and Budget (MMB) office released its November budget forecast. Published bi-annually in late February and early December, the budget forecast helps give lawmakers and the public a view into the economic wellbeing of the state. Generally speaking, the November forecast is viewed as more speculative while the February budget report has a more sizable impact on the legislative initiatives being considered in St. Paul.
Tuesday’s report projected that the state is facing a $188 million budget deficit next year. While this is not “welcome” news, the report actually painted an economic picture with some encouraging news to Minnesotans.
The report revealed that Minnesota’s jobs numbers remain strong with unemployment at its lowest level in 17 years with wages finally growing. The one primary concern is that Minnesota’s GDP is growing well below the national average at 1.2% last quarter, placing Minnesota’s economic growth in the bottom 10 of all 50 states. Last session Minnesota’s government continued to grow at a faster rate than our private sector economy—which pays the taxes for government services. This is unsustainable. On a brighter note, the report revealed that the U.S. economy grew at a very strong rate, with a growth rate last quarter of 3.3%.
It is important to highlight a few of the assumptions that state economists make in the report. First, the report does not take into account the historic federal tax reform that is likely to be signed into law by President Trump by the end of the year. It is widely believed that these federal reforms will help promote even greater economic growth both nationally and in Minnesota.
Second, the forecast reflects $178 million in new state spending on the federal Children's Health Insurance Program (CHIP). Nearly all of this funding will be backfilled once CHIP is renewed at the federal level—something that congressional leaders have signaled will take place when the new federal budget is agreed upon. When you take this into account, nearly all of the $188 million projected deficit is washed out.
During the last legislative session, Republicans passed substantial tax cuts. Ideally, when reducing taxes, it is important to also restrain spending in order to allow the private sector to grow as a result of those tax cuts. In the long run, tax reductions will create more tax revenue from the private sector, but it takes time to realize the benefits of those tax reductions. Unfortunately, during the last legislative session, Governor Dayton and the DFL insisted on more spending.
At the end of the day with the tax cuts we enacted in Minnesota last session and the prospect of major federal tax cuts, I am optimistic that we will receive positive news about the updated budget forecast when it is released at the end of February.
As always, I am available to answer any legislative questions you may have. Feel free to contact me at rep.glenn.gruenhagen@house.mn or by phone at 651-296-4229.
Sincerely,
Glenn