Minnesota’s economy is starting to heal, but it is going to be a long, slow recovery according to the state’s most recent budget forecast (released early in December). Minnesota is estimated to have a new $1.2 billion shortfall in the current biennium, driven by a larger-than-expected drop in income tax revenue. The state now faces an estimated $6.6 billion deficit for FY 2012-13 (including inflation).
The Minnesota Budget Project has just released our analysis of the state’s November forecast. In addition to highlighting the overall numbers (which we blogged about in December) and the deficit problems facing the Health Care Access Fund (which we blogged about this week), this analysis looks at the underlying economic problem driving our state’s budget problems – jobs and wages.
The forecast offers this discouraging assessment:
“Employment in Minnesota is now expected to fall by more than 150,000 jobs between the first quarter of 2008 and the first quarter of 2010, 30,000 more than projected last February. If this forecast holds true, more than a decade of job creation will be lost.”
When economists tally the final numbers, Minnesota is expected to have four percent fewer jobs in 2009 than in 2008 and non-farm wages are predicted to drop nearly six percent. It’s the first time the state’s wages and salaries have dropped from one year to the next since the state began tracking data in 1970.
And that has taken a big toll on the state’s finances. While this year’s general fund spending is actually tracking slightly lower than projections, income tax revenue is predicted to drop an additional $827 million for this biennium (FY 2010-11). That loss accounts for nearly 70 percent of the new $1.2 billion deficit.
Among the other forecast findings: the economy is stabilizing but firms will be slow to hire, choosing instead to increase hours for existing workers. The national employment numbers are not expected to return to pre-recession levels until 2013.
Minnesota Management and Budget will release the next major economic forecast in late February, after the legislative session has begun.
-Scott Russell and Christina Wessel
