This week we learned the bottom isn’t falling out of Minnesota’s economy anywhere close to the degree earlier projections indicated it would. In fact, Minnesota Management & Budget issued a budget forecast which calls for a $641 million state revenue surplus through June 30, reversing a previously projected $2.4 billion shortfall.
Beyond that, a $1.3 billion shortfall for the 2022-23 biennium remains, but even that is less problematic than earlier predictions of a $4.7 billion gap.
In short, better-than-expected tax revenues driven by a rebounding economy, strong consumer spending, and federal relief that allowed unemployed workers to continue paying income taxes are helping to keep Minnesota afloat.
So are reduced state expenditures.
Let’s start with a $919 million drop in Health and Human Services spending linked to lower-than-expected Medical Assistance utilization. People may have been unable to get in to see their doctor or deferred/canceled procedures out of fear for catching Covid-19. Lots of possibilities here and we can only pray people didn’t neglect issues that may cause their health to deteriorate.
Also, a $118 million reduction in E-12 education spending occurred as many parents sought alternative educational options for their children or delayed sending them to kindergarten. To what degree this causes a dip in enrollment for the long term remains to be seen, but I’m already hearing of legislative proposals to hold school districts harmless from reductions in state funding. Watch for more on this.
While the state’s expenditures were down in certain areas, its tax revenue also didn’t fall as steeply as earlier anticipated. In addition to the federal relief mentioned earlier, the governor’s executive orders allowed the big-box, high-volume stores to continue business as usual and many of them actually saw increased business. Meanwhile, the smaller mom-and-pop shops that don’t do the volume but focus on quality and service have suffered the most under the governor’s unilateral restrictions. Furthermore, low-income earners have been hit hardest by the governor’s orders, another factor mitigating the state’s loss in income-tax revenue.
On a quick side note, it’s time for the governor to stop insulting our small businesses by thanking them for “taking one for the team” or for making such great “sacrifices” to help fellow Minnesotans. Every time the governor says that, he implies small-business owners volunteered to close their doors and that workers, for the love of fellow Minnesotans, just decided to skip their paychecks. This is a gross mischaracterization of the unilateral mandates the governor placed on our workers and they deserve more respect than for the governor to give the public impression they signed up for this.
In closing, I should point out the November forecast is only a preliminary set of figures for the Legislature to use in setting a new two-year state budget during the 2021 session. The February forecast will provide the official data and much could change by then. I must add to that by saying tax increases should be non-starters, especially since the state has enough taxpayer money in reserves to cover the shortfall as of now.
As they say, the situation is fluid. Stay tuned.