Just some quick legislative notes I would like to pass along today, starting with the latest state economic forecast issued by Minnesota Management and Budget this week.
The forecast shows a $188 million shortfall for this biennium (through June of 2019). There are several reasons to be skeptical of that figure but, before we get to those, we should note that Minnesota’s economy is generally in good condition. Our unemployment rate is the lowest we’ve seen in 17 years, income is on the rise and Minnesota’s economic growth is stronger than most other states.
Now, back to some reasons we should take the forecast figure with a grain of salt. Here are three good ones:
First of all, the forecast shows $178 million in state spending for the federal Children's Health Insurance Program (CHIP), nearly all of which would be restored once CHIP is renewed at the federal level. Congress has assured us it plans to reinstate this program so, when that happens, the shortfall is reduced to from $188 million to $10 million.
The second thing to look at is the forecast assumes no federal tax bill will be passed, even though both the House and Senate passed tax bills last week. This is a change in approach from the last forecast issued last February, when a federal tax bill was factored into the formula along with the additional state tax revenues it would be expected to bring. Eliminating a tax bill from the mix this time reduced the projected revenue for the state in this forecast, contributing to the shortfall. Again, federal passage of a tax bill would significantly change our projected bottom line.
A third point to consider in the forecast is that it assumes 2.2 percent GDP growth in 2017, even though our state showed 3.1 percent growth in the second quarter and 3.3 percent growth in the third quarter. Even a slight bump from 2.2 to the mid-2s would make a substantial difference in the forecast.
With all this in mind, let’s remember the forecast we received this week really has no meaningful impact on action the Legislature will take during the 2018 session. Another full forecast will be issued in February and those are the numbers that will serve as our framework for decisions at the Capitol. Much can happen between now and then that would change our state’s economic outlook, including the CHIP reinstatement, enactment of a federal tax bill and continued economic growth.
It is good to see our economy growing, but I do want to offer caution for the long term because certain trends could have very negative consequences. For example, the push by some to raise the minimum wage higher and higher ($10 statewide on Jan. 1 and up to $15 in Minneapolis by 2021) could severely damage Main Street businesses in Minnesota. I already am hearing from business owners in our own district who plan to leave our state. They are telling me Minnesota presents numerous challenges that other states do not, therefore they will be relocating to another state – taking jobs and tax revenue with them.
On a different subject, the state has contracted with a private firm, FAST Enterprises, to develop the driver services portion of the Minnesota License and Registration system that is being overhauled. The MNLARS changeover has been a major headache for citizens and DMV registrars throughout the state. Hopefully, FAST Enterprises will be able to succeed where the state IT folks were failing so that our state is able to meet the federal government’s October 2018 deadline to comply with new Real ID guidelines.
Have a good weekend and, as always, your input is welcome.