Minnesota has a $1.086 billion positive balance projected for the FY 2014-15 biennium. This good news in the 2013 November Economic Forecast released today means Minnesota will finish repaying past debts – including $246 million to fully reverse the school funding shift and $15 million to refill the state airports fund.
That will leave $825 million on the bottom line as we head into the 2014 Legislative Session.
Why are the numbers looking so good? Minnesota’s economy is faring far better than U.S. economy, and was one of the six fastest growing state economies in the nation in 2012. The indicators continue to improve in 2013, with Minnesota’s employment back to pre-recession levels, unemployment continuing to fall, and wage and salary growth exceeding expectations.
The result is that projected revenue collections for the FY 2014-15 biennium are up by $787 million over end-of-session estimates and state spending is down by $247 million.
These numbers can give Minnesotans hope: we have turned a corner and are getting back on our past track of growth and prosperity. The actions in the 2013 Legislative Session to rebalance our tax system and make critical investments are building a strong foundation for our future.
But we should proceed with caution. Minnesota’s economy is still very vulnerable to decisions made at the federal level. Federal policymakers have focused too much on deficit reduction too soon in the recovery, creating a drag on growth. It could get worse. Global Insight, Minnesota’s economic consulting firm, assigns a 20 percent probability to a more pessimistic scenario where there is “unwarranted fiscal tightening” in Washington and a worsening global economic crisis. There is also a 20 percent probability of a better outcome, if federal policymakers enact a “credible long term deficit reduction plan” instead of the automatic spending cuts.
It’s definitely too soon to talk about repealing components of the 2013 tax bill – doing so would put at risk our ability to fund quality education, making college more affordable, and other investments that will sustain future economic growth.
Minnesota made progress in the 2013 budget to fund our state’s priorities without gimmicks, make the tax system more fair, and invest in opportunity and prosperity. A positive balance in 2014 creates the opportunity to take additional steps forward. For example, many low-income Minnesotans still pay a higher share of their incomes in state and local taxes than the highest income Minnesotans. Updating the state’s Working Family Credit to reflect recent federal improvements would make the tax system more fair and boost consumer demand. And, although we made gigantic strides in improving access to affordable health insurance, there are vulnerable Minnesotans who were left out by reform and will continue to struggle to get health care they need.
Governor Dayton will release his budget proposal after the state’s next economic forecast is released in late February. That’s a wise decision – by that point, we’ll have updated data for predicting Minnesota’s revenue collections and more clarity on federal fiscal decisions so we can be more confident that our budget choices are sustainable.
The forecast documents are available on the Minnesota Management and Budget website.