The October 2013 Economic Update from Minnesota Management and Budget shows state revenues are on track, but a worrisome outlook for the economy.
The October Update is our first look at revenues since some of the provisions of the 2013 tax bill went into effect. Revenues are pretty much on target for the first quarter of FY 2014. Income and sales taxes came in higher than expected, balanced by cigarette and tobacco tax revenues falling short.
Another bit of good news in the Update is that an additional $636 million has gone toward reversing the education shifts. That’s because Minnesota closed FY 2013 with revenues $489 million higher than what was originally projected in the February Forecast, and lower spending. The state has $238 million to go to fully reverse the shifts.
Now to the economy. During the summer, the U.S. economy continued to grow despite the drag caused by sequestration and the inability of federal policymakers to approve 2014 appropriations. But job growth has slowed over the last three months. And while the government shutdown has had serious consequences for many, the debate over raising the debt ceiling is far more worrisome for the U.S. economy. If Congress fails to lift the debt ceiling and meet the nation’s financial obligations, it could cause global financial turmoil.
IHS Global Insight, the state’s macroeconomic consultant, assumes that Congress will raise the debt ceiling. However, Global Insight assigns a 20 percent probability to a pessimistic scenario in which the debt ceiling is raised but “excessive fiscal restraint” coupled with a “worse global outlook” brings the U.S. close to a recession.
Minnesota is reversing its funding shifts and revenues are on track. However, uncertainty at the federal level is jeopardizing our success. As we mentioned earlier this week, federal policymakers need to end the shutdown and raise the debt ceiling, and then pass a budget that meets four critical priorities:
- Strengthens the economic recovery;
- Avoids increasing poverty and hardship;
- Invests in the building blocks of economic growth;
- Takes a balanced approach that includes budget cuts and revenue increases.