The state’s cycle of budget deficits continues

The state’s cycle of budget deficits continues. That’s the news from this morning’s release of the November 2012 Economic Forecast. The state ended the August special session with a $1.1 billion deficit projected for the FY 2014-15 biennium. And that’s where the number stands in the new forecast. When taking the impact of inflation into account, the deficit is closer to $2.0 billion in FY 2014-15 and $2.1 billion in FY 2016-17.

Some pleasant news in the forecast is a $1.3 billion positive balance for the current biennium, FY 2012-13. State law has already determined how those dollars will be used. All $1.3 billion will go to continue to buy back the school payment shift, making a significant dent in the $2.4 billion needed to fully reverse the shift.

Despite the short-term good news, the troubling cycle of recurring budget deficits indicates that Minnesota is still not on the right track to sustainably fund the state’s priorities. In order for that to happen, we need to reform our outdated tax system so that it raises enough revenues to support our needs, and does so fairly.

Unfortunately, there is an unusual amount of uncertainty connected to this forecast that could still increase the size of the deficit for the FY 2014-15 biennium.

The uncertainty around the federal fiscal cliff negotiations is getting the most attention. Minnesota Management and Budget took the unusual step of developing a budget projection that considers the worst-case scenario. Bottom line: if gridlock leads to us falling over the fiscal cliff, the nation would likely sink into a recession in early 2013. Minnesota’s budget deficit for FY 2014-15 would increase by $1.7 billion, to a total of $2.8 billion.

Congress and the President can avoid this negative outcome by taking a balanced and responsible approach to federal deficit reduction that supports economic growth in the short term and fiscal stability in the long term. They can avoid the fiscal cliff by agreeing to a balanced package that includes raising revenues. The alternative would mean more poverty and growing inequality, and further challenges to funding Minnesota’s schools and communities.

Another uncertainty is $4.2 billion over the next four years in federal Medicaid dollars that are included in the forecast. The July Supreme Court decision on the Affordable Care Act changed the rules of the game, and Minnesota will now likely need legislative action before we qualify for those federal funds. Bottom line: the forecast assumes that beginning in 2014, we’ll get a 100 percent federal match for covering adults without children with incomes up to 75 percent of the federal poverty line through Medicaid. But Minnesota needs to take one more step to access those federal dollars.

Fortunately, state lawmakers face a win-win situation on this issue. They should act to cover Minnesotans with incomes up to to 138 percent of the federal poverty line – that’s $15,415 for an individual or $20,879 for a couple, which would secure the 100 percent federal match on the newly eligible individuals. Not only would this save the state money, but it would allow more than 140,000 very low-income Minnesotans to gain access to affordable and comprehensive health insurance.

Minnesota still faces significant challenges. The state must now reform our revenue system so that we can sustainably and fairly fund the state’s priorities, allowing us to make investments now for our long term prosperity. And we also have important work to do in the 2013 Legislative Session to secure affordable health insurance for the most vulnerable Minnesotans.

-Christina Wessel

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