As vice-chair of the House Mining, Forestry and Tourism sub-committee, this week I attended the Iron Mining Association’s (IMA) annual meeting at Tower. The IMA consists of nine iron mining companies and about 100 service companies. There is cautious optimism that production levels and market conditions will remain favorable going forward.
Over the past several years, Minnesota’s mining industry was hit hard by foreign steel dumping into US markets and a worldwide decline in steel prices. It was nice to see smiles on the faces of the many men and women that work in one of Minnesota’s very important industries.
The November state economic forecast was released this week. We take two snapshots per year, one in November and one in February.
The current forecast projects a $188 million shortfall at the end of this two-year state budget cycle. The projection is based on a number of assumptions that will very likely change in the near term.
First, this forecast reflects $178 million in additional state spending on the federal Children's Health Insurance Program (CHIP), nearly all of which is covered by federal dollars. It is anticipated that Congress will continue funding that program. However, we shouldn’t count future federal dollars until they are actually in our check book.
The forecast also assumed no federal tax bill will be passed. While that is not a done deal yet, both the House and Senate passed tax bills last week. The previous February forecast assumed there would be a federal tax bill, which would spur increased economic activity netting additional state tax revenues. That assumption was dropped this time, resulting in lowering future projected state tax revenues.
The forecast also assumed 2.2 percent GDP growth, despite 3.1 percent growth in the second quarter and 3.3 percent growth in the third quarter of this year. The forecast would be significantly more optimistic if Minnesota’s economy continues to perform even slightly above that assumed 2.2 percent growth rate.
Overall our state’s economy is strong, unemployment is at a 17-year low and finally wages are beginning to edge up. The February forecast will provide more clarity. Many assumptions will be replaced by facts, including “yes” or “no” on federal CHIP funding, a federal tax bill, and will Minnesota’s economy continue to grow at 3 percent or greater?
Those facts will shape the February forecast and better define what options we will have in the next legislative session which begins Feb. 20, 2018. Please have a safe weekend.