The Minnesota Budget Project has long joined with other experts (such as the state’s Council of Economic Advisors and the State Budget Trend Study Commission) in arguing that the state needs a more robust budget reserve to help us through economic downturns.
Last week Minnesota Management and Budget released a report advising that the state would need a budget reserve of $1.3 billion for the current biennium to adequately prepare us for short-term fluctuations in the state’s volatile revenue streams. That’s equal to about 3.9 percent of last biennium’s expenditures.
Unfortunately, we are nowhere near that goal.
- The state’s budget reserve is currently at zero. The Governor was required to use up the last $155 million in the reserve when he unallotted in December 2008.
- The state’s cash flow account (currently at $350 million) should not count towards the budget reserve target. As recent news shows, we need the cash flow account to meet cash flow needs.
- Even if we were enjoying a surplus right now, state law effectively caps the state’s budget reserve at $653 million (which is just 1.9 percent of last’s biennium’s expenditures).
Clearly, we are in no position to be building a budget reserve right now. Hopefully, however, the economy will turn around and the state will once again experience budget surpluses. When those days return, it should be a high priority for the state to fill the state’s budget reserve to an appropriate level.
Fortunately, a new state law requires MMB to provide a recommended level for the state’s budget reserve every January. And to help things out, policymakers could change the current cap on the state budget reserve so that future surpluses could be directed towards building the budget reserve to a more responsible level.
-Christina Wessel
