Minnesotan spending helps tip state budget into surplus, for now


Minnesotans are spending more than expected and the state government is spending less, leading to a financial about-face on Tuesday, as economists predicted the state’s budget deficit had grown to a surplus of $ 641 million.

Heads of state have moved from finding a way to fill a hole in the current budget to anticipating a few more dollars, which could be used for priorities such as COVID-19 relief. Still, budget officials have warned that the ongoing pandemic and other factors are making the state’s financial situation more uncertain than usual.

Tuesday’s forecast also contemplates the next two-year budget cycle, which begins July 1. Planned spending is expected to exceed revenue in the coming years, resulting in a projected variance of $ 1.27 billion in the next budget. But this shortfall is much smaller than expected seven months ago.

The new numbers set an easier path for Gov. Tim Walz and lawmakers as they craft a state spending plan for 2022 and 2023. The forecast will be the basis of Walz’s budget proposal, which he says. will debut in January and chat with lawmakers through winter and spring.

Walz and lawmakers are also awaiting the latest financial forecast as they negotiate a COVID-19 relief plan. Lawmakers said on Tuesday they hoped to reach a deal within a week or two and send aid this month.

Economists painted a grim picture in the latest forecast for May, as coronavirus cases in the state soared to 7,851. They thought the current budget would have a deficit of $ 2.4 billion. In July, authorities predicted a gap of $ 4.7 billion for the next two years. The pandemic has raged since then, hitting the wallets of many Minnesotans and infecting more than 322,000 people.

But higher-than-expected business investment, as well as tax and tax revenues, cushioned the blow to state finances. Other states with sales taxes also saw better-than-expected incomes, state economist Laura Kalambokidis said recently, in part because additional federal unemployment insurance payments kept people going. to buy things. People spend more on goods, like furniture, and less on in-person services.

A decrease in government spending has also contributed to the potential surplus and better prospects for the next budget.

The forecast is that state spending for the current budget will be $ 1 billion lower than previous forecasts and $ 409 million lower in 2022 and 2023.

The state saved money because fewer people used health services, federal funding for medical assistance increased, and public school enrollment declined.

The projected number of students has fallen by 12,600 students this year as more families delay kindergarten, choose private school or home schooling, said budget manager Britta Reitan. That’s a small percentage of the state’s 875,000 students, but it translates to significant savings, she said.

The uneven financial impact of the coronavirus also affected the numbers, Kalambokidis said.

The state has 184,000 fewer jobs than in February, according to forecasts. People who filed for unemployment insurance were more likely to have worked in lower-paying jobs, she said.

“You expected consumer spending to be more affected given the level of unemployment, but because the burden was not borne equally – it was borne more by low-income people – spending have not declined as much as we expected, ”she said. noted.

During the May forecast, economists believed that the pandemic-induced holidays, pay cuts and layoffs would lead to a 5.9% drop in total wages and wage incomes in the state in 2020. But this Uneven burden on low-wage workers meant that this drop was not as severe as expected.

Total income is now expected to decline by just 1.4% this year, helping to keep government tax revenues high.

Walz urged lawmakers on Tuesday to determine who suffers the most during COVID as they work on a relief bill and develop the next state budget.

“There are families and businesses on the brink today. There are more people, one in eight families, wondering where they are going to have their next meal, ”said Walz. “But the good news today is that we have the resources, the capacity, the stability and the fiscal strength to be able to make a real difference in this area.”

The governor said the ongoing aid program would provide a bridge for small businesses and workers whose federal unemployment benefits expire after Christmas, as well as low-income families. He suggested the cost could range from $ 300 million to $ 600 million.

House Republicans said on Tuesday they wanted the package to focus only on business, but are optimistic that a deal will be reached soon. GOP lawmakers also stressed after the forecast that the state government should look for other ways to cut spending in the next budget and avoid raising taxes.

“Right now we have a surplus and we don’t need to raise taxes. We don’t need to do this. And we have to tighten our belts, ”said Senate Republican Majority Leader Paul Gazelka.

DFL House President Melissa Hortman warned that the forecast does not take inflation into account in the next budget cycle and said the deficit would likely be closer to $ 2.6 billion. She said a general refusal to raise taxes could mean service cuts for those hardest hit by the COVID-19 pandemic.

Meanwhile, Management and Budget Commissioner Jim Schowalter has warned that a long list of factors could alter Tuesday’s forecast, from the timing of a coronavirus vaccine to the pandemic’s effect on the economic activity to the possibility of another round of federal aid for the states.

Minnesota’s full reserves place the state in a relatively strong position to overcome this uncertainty. The state saved $ 2.4 billion to help weather economic downturns. But Schowalter said the state shouldn’t use too many reserves to close a potential gap in the next budget cycle.

“The key to the long term is that we are constantly looking to use [the reserves] wisely during downtime and making sure we keep investing in it in better times, ”he said,“ just because you don’t know when you’ll need it.


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