As has frequently been the case lately, the state’s recently released July 2012 Economic Update is a good news/bad news story.
First, two pieces of good news: State revenues were 2.1 percent, or $336 million, above projections for the fiscal year that ended on June 30, according to preliminary figures. The second piece of relatively good news is that Minnesota’s economy has done better than the national averages since 2007, ranking 15th for economic growth from 2007 to 2011.
Now the bad news. U.S. economic growth in 2012 so far has been weaker than previously predicted, and economists have reduced their expectations for growth in future years.
The lower economic growth could be a hint of a larger deficit in Minnesota’s next budget cycle, although it’s important not to read too much into these preliminary figures. The state ended the 2012 Legislative Session with a projected $1.1 billion shortfall in the next budget cycle, and fully reversing the school funding shifts will take $2.4 billion more. Policymakers will need to find sustainable and fair ways to close that revenue shortfall when they pass the budget next year.
The economic update also warns that poor federal fiscal decision-making could have a harmful impact on the national economy, potentially even tipping it into recession.
That’s a warning that federal policymakers should take seriously. They should take a balanced approach that supports economic recovery in the short term and promotes fiscal stability in the long run. Over-emphasis on long-term deficit reduction is a real threat to economic growth and the well-being of thousands of Minnesotans who are struggling to get back on their feet in a tough economy.