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December 06, 2017

Minnesota Legislative Update: Budget and Economic Forecast Released

On Tuesday, December 5, the office of Minnesota Management and Budget (MMB) released the November Budget and Economic Forecast. Based on the forecast, the state is facing a projected budget deficit of $188 million for the current biennium and a $586 million deficit for the 2020-2021 biennium. Forecast revenues for the biennium are down $559 million compared to end of session estimates. All major tax types show reduced growth, with individual income taxes expected to be $461 million lower over the current biennium. Spending is estimated to be $398 million higher than previously estimated largely due to a higher forecast for special education costs and an increased state general fund obligation due to congressional failure to appropriate money for the Children’s Health Insurance Program (CHIP) at the federal level.

The current biennium’s deficit would grow to just over $300 million once the Governor and Legislature resolve their ongoing dispute over line item vetoes of the Legislature’s funding.

There are a number of risks inherent in the forecast, including continued uncertainty regarding federal trade and tax policy and slower economic growth than previously estimated. In addition, the current economic recovery and expansion period is now into its ninth year, well beyond the average length of post-World War II U.S. expansions.

Governor Dayton, at his press conference, was careful not to point fingers as to the projected deficit’s cause and underscored the inherent risks contained in the forecast. He was clear that his budget proposal and work with the Legislature on any supplemental budget next session will be based on the February forecast, not this one. He also committed, absent being presented with additional conditions by legislative leadership, to restoring the Legislature’s funding next session. The Governor acknowledged Minnesota’s healthy budget reserve, currently estimated at $1.65 billion, but believes that the use of those funds should be used for a more significant deficit than contained in this forecast.

House and Senate GOP leadership also commented, agreeing with Governor Dayton as to this forecast’s inherent risks. They believe the November forecast is flawed because it doesn’t account for the anticipated passage of a federal tax bill and the past two quarters of higher than anticipated federal economic growth of over 3 percent compared to the forecast’s projection of somewhere around 2.5 percent growth. Speaker Daudt also believes that Congress will fund CHIP, which essentially eliminates the projected deficit. Finally, they noted that the forecast shows an additional $3.2 billion in revenue for the next biennium and, if there is an issue, it’s because of overspending. Both Speaker Daudt and the Senate Majority Leader Gazelka are optimistic that the February forecast will show a surplus.

House and Senate DFL leadership also commented on the forecast, noting that it validates their concerns that additional spending and tax cuts adopted last session, and the use of one-time funding, are not sustainable. They believe this forecast should dampen expectations for next session.

In sum, legislative leaders and Governor Dayton generally agree that the November forecast is more of a barometer and will defer making decisions regarding any supplemental budget until after the February forecast.

For more information on the forecast, MMB’s budget documents can be found here:

November Forecast
Forecast Presentation

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