Earlier in the month, I was asked what the chances are that the February Forecast would be worse than the November Forecast, which estimates a $1.2 billion shortfall in the current FY 2010-11 biennium and a projected $6.6 billion deficit for FY 2012-13 (including inflation). I suggested that we needed to watch out for things like holiday sales or end-of-year income figures coming in lower than projected, or news hinting that the future economy would be even worse than predicted. Remember, a bad economy doesn’t necessarily make the February forecast worse – only a bad economy that is worse than we previously thought.
Minnesota Management and Budget has released their January 2010 Economic Update, a quarterly report that provides a snapshot of how state government revenues and the state’s economy are doing, compared to the most recent forecast. It indicates that, so far, state general fund revenues are pretty much on track, although there is still more significant information to come that will inform the February Forecast.
- State general fund revenues are consistent with the forecast. Revenues since the forecast’s release (November and December 2009) are down $1.5 million, or 0.06 percent less than forecast. Because of the timing in which sales taxes are remitted, the Update reminds us that these figures only include the November part of the holiday shopping season.
- The future economy is going to be bad, but no hints yet that it will be even worse. The Update says that there are “only modest changes in the baseline forecast for 2010 and 2011 since November.” So it’s good that it is not getting worse, but remember the baseline forecast is not rosy. A pertinent quote from the Update:
[W]hile this year’s economic outlook is far less frightening than 2009′s, economic conditions are not expected to return to normal in 2010. The U.S. unemployment rate is expected to remain above ten percent for the entire year and although some job growth is projected, it is only the first step in replacing the nearly 8 million jobs that have been lost since late 2007.
So, at least for now, no hints that the February forecast will get substantially worse. However, MMB always warns us against reading too much into a few months of data. Global Insight, the state’s economic consultants, still assign a 60 probability to their economic predictions, with a 20 percent chance of a better recovery and a 20 percent chance of a “double dip” recession.
Another interesting note: the Update talks about technical adjustments they’ve made to account for the fact that the state has been dealing with cash flow issues through delaying certain kinds of tax refunds.
-Nan Madden
