The state’s February economic forecast reveals that there have been small changes in the state’s budget situation since the last forecast was released in December. Minnesota’s budget deficit has dropped slightly for the current biennium, from the projected $1.2 billion down to $994 million (a change of $209 million). However, this decline doesn’t necessarily mean good news for the state. The forecast also finds that projected deficit for the FY 2012-13 biennium has increased slightly, from $5.4 billion to nearly $5.8 billion. (You can view the February Forecast documents on the Minnesota Management and Budget web site).
What can we learn from this forecast? Basically, not much has changed since last year, so we can’t hope that an improving economy will solve the state’s budget problems. Policymakers will need to make the tough choices to balance the budget now, and in the future. But there are a couple of things they should keep in mind.
Minnesota families are still struggling. State economist Tom Stinson pointed out that the forecast predicts that employment in won’t reach pre-recession levels until early 2013. State budget decisions have a real impact on the services that help families stay afloat in a bad economy. Keep in mind, struggling Minnesotans aren’t just feeling the impact of budget cuts this year, or the impact of budget cuts and unallotments last year, but the cumulative effect of the budget cuts we have been experiencing nearly every year since large deficits first appeared in 2003.
We need a balanced approach to solving this deficit problem. Spending cuts will be part of the solution this session, but the only way to lessen the burden on the Minnesotans hit hardest by the recession is to ensure that revenue increases will be part of the plan too. With the state facing a $5.8 billion deficit in the next biennium (nearly $7 billion with inflation), it is irresponsible to continue to balance our budget through spending cuts and one-time resources alone. In times like these, everyone needs to contribute to solving the deficit in the way they are able to. For some, it’s the loss of services, for others, it’s an increase in taxes. And Minnesota wouldn’t be alone – a majority of states in the nation have found a way to balance their budgets through a combination of spending cuts and revenue increases.
What comes next? The Governor will need to revise his supplemental budget proposal to reflect the updated forecast numbers. One important issue will be the role of federal dollars in any budget solution. If you remember, the Governor’s initial budget proposal counted on $387 million in enhanced federal Medicaid funding (about one-third of his solution). Congress, however, had not yet passed any bill providing the states with federal fiscal relief and the Governor did not offer any plan for how to balance the budget if Minnesota didn’t get the $387 million.
Since then, Minnesota has learned it will receive an additional $83 million health care related dollars from the federal government (these dollars were incorporated into the February Forecast and contributed to the decline in the size of the deficit). However, Congress has yet to pass the new round of federal stimulus that the Governor’s budget is counting on. We strongly support the passage of federal fiscal relief for the states and we hope to see the Governor articulating the importance of Congress acting quickly on this. However, we must recognize that action by Congress may not come in time to impact the budget decisions policymakers need to make this session. Given the importance of coming up with a solid plan for solving the state’s budget deficit, we’ll be looking for the Governor’s revised budget proposal to include a detailed contingency plan for how the state would balance the budget if the federal dollars do not materialize.
-Christina Wessel
