December 2, 2008
The latest news is all about recession. Yep, the National Bureau of Economic Research announced yesterday that the nation has been in a recession since December 2007.
Over the coming months, we are going to be pointing out how this recession is different for Minnesota than the 2001 recession. One difference is unemployment.
Last recession, Minnesota’s unemployment rate stayed well below the national average. But that’s different this go around. Since January 2007, Minnesota’s unemployment rate has risen above the national average six times. In October, Minnesota’s unemployment rate inched up to 6.0%. We’ve lost more than 16,000 jobs over the last year.
Now to add some context to the mix: Minnesota’s unemployment, calculated as a three-month average for August - October 2008, has risen 52% compared with the same period two years ago. Only nine other states experienced unemployment increases of 50 percent or higher (although it could be worse: Florida saw an increase of 104%!). About half of the states (including D.C.) saw increases of 30% or more. Only three states have not had unemployment increases.
Is anyone else feeling like the “invisible hand” has been all thumbs?
-Katherine Blauvelt
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Economy | Tagged: Economy, unemployment | 
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Posted by Katherine Blauvelt
December 1, 2008
The Minnesota Budget Project team was out at a conference during the week of November 17, and one thing I was very sorry to miss was the meeting of the Legislative Commission on Planning and Fiscal Policy on Friday, November 21.
Minnesota Public Radio and other news outlets have reported that information presented this meeting suggest that the state’s budget deficit may be around $4 billion for the next biennium. That seems consistent with the $4 to $6 billion going around the rumor mill. We will have more precise figures when the official forecast is released on this Thursday, December 4.
$4 billion is about 11% of the state’s general fund budget for FY 2010-11. Clearly big challenges are ahead. We recommend that policymakers keep the following principles in mind as they consider the deficit:
- A balanced approach is needed. With a deficit of this size, we cannot afford to take any of the primary budget-balancing tools - raising revenue, using reserves and other one-time measures, and cutting spending - off the table.
- The state needs to respond to the economic downturn and help build a stronger economy in the long run. Services that help people get and keep jobs, and that help families make ends meet must be allowed to work during these tough times. Budget-balancing choices should not make the impact of the recession worse for those least able to weather the economic downturn, including low-income families, laid-off workers and other vulnerable populations.
- We must understand the impact of state budget decisions on the economy. Joseph Stiglitz (a Nobel Prize-winning economist) and Peter Orszag (currently director of the Congressional Budget Office) have argued that spending cuts can be a bigger drag on a state’s economy than a targeted tax increase. As Christina has stated in a previous blog entry, cutting state spending takes dollars out of Minnesota’s economy. A targeted tax increase on high-income earners is likely to have less of a drag on the state’s economy, because those individuals are likely to maintain their levels of consumption, but compensate for the tax increase by saving less. That maximizes the amount of money moving in the state’s economy.
And if you missed it, the Star Tribune had an interesting story this week-end that looked behind the scenes at how the forecast is developed. It covers the art and science of forecasting, but also confirms that we are going to hear some very bad news on Thursday when the forecast is released.
-Nan Madden
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Budget Process, Economy, Taxes | Tagged: budget deficit, forecast, Taxes | 
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Posted by Nan Madden
November 26, 2008
Thanks to the economic downturn, states across the country are drowning in red ink - and now we have a not-very-well-publicized ruling from the IRS that could add to our fiscal woes.
Up until this point, tax law prevented companies from using a newly-purchased company’s tax losses to write off their own taxes. This was quite intentional - it prevented companies from buying other companies just so they could avoid paying taxes. But in late September, the IRS issued a ruling making an exception to this: a bank that acquires a failing bank with tax losses attributable to bad loans can use the losses from the deal to write off future taxable profits. The first case that this applies to: Wells Fargo’s pending acquisition of the uber-troubled Wachovia Corp.
This is a huge policy shift, done without Congressional approval, and the cost is considerable. As the SF Chronicle reported, some experts are saying that these new tax advantages will more than pay for the entire Wachovia deal. That’s worth repeating - the cost of buying Wachovia could essentially be - nothing. It’s a tax write-off worth more than $14.4 billion for Wells Fargo. And when the dust settles from all other acquisitions, the total tax revenue loss from this IRS ruling is estimated around $140 billion. This has understandably incited a reaction from members of the U.S. House and Senate, where legislation was recently introduced to reverse the IRS ruling.
Pending legislation notwithstanding, the practical question of the moment for Minnesota is whether this new ability of acquiring banks to minimize their corporate tax liabilities will trickle-down to states, resulting in less revenue for our already-in-deficit state of Minnesota. According to an analysis from Citizens for Tax Justice, a nonpartisan tax research and advocacy organization, at least 18 states - including Minnesota - could be hit. Wells Fargo certainly has a large presence in our state, so I’d expect some impact. According to their web site, Wells Fargo is ”the second largest private employer with 20,000 team members…it has the largest distribution of any financial organization in the state.”
Certainly an issue worthwhile for Minnesota to follow.
-Katherine Blauvelt
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Economy, Taxes | Tagged: banks, business taxes, IRS | 
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Posted by Katherine Blauvelt
October 17, 2008
It now seems likely that Congress will return to work in a “lame duck” session in mid-November. Leaders in both the House and Senate have indicated that another stimulus bill to address the deteriorating economy is in the works. Possible elements that could be included in the package include tax rebates, federal fiscal aid to states, a temporary boost in Food Stamp benefits, an extension of Unemployment Insurance benefits and an increase in funding for the Low-Income Home Energy Assistance Program (LIHEAP).
Declining tax revenues are also hitting the budgets of state governments hard. After closing a projected shortfall of $935 million during the last legislative session, Minnesota legislators will once again face a large projected budget shortfall when they convene in January 2009.
The Minnesota Budget Project sent a letter signed by 66 nonprofit organizations to the Minnesota Congressional delegation in September urging that federal fiscal aid to states be included as a key part of any second economic stimulus package. With Minnesota and other states facing new and deeper projected budget shortfalls next year, the need for federal fiscal aid to help the states is more urgent than ever. That is why we are reopening our sign-on letter to gather even more signatories. If your organization has not yet signed our letter, please join us today. Our new deadline is November 12.
In 2003, Congress provided $20 billion in fiscal aid to the states in the form of a temporary increase in the Medicaid match rate as well as general grants. This relief helped to avert deeper cuts in health care coverage and helped states address growing deficits. Unlike the federal government, virtually every state is required to balance its budget. Read more about federal fiscal aid to the states and why it should be part of an economic stimulus package.
We will keep you posted on further developments regarding a possible post-election session of Congress and a second economic stimulus package.
– Steve Francisco
No Comments » | Action Opportunity, Economy, Federal Budget | Tagged: Economy, federal aid to states, stimulus | Permalink
Posted by Nan Madden
October 16, 2008
New numbers from the Minnesota Department of Employment and Economic Development: Minnesota’s seasonally adjusted unemployment rate edged down in September to 5.9%. That’s slightly below the national rate of 6.1%. We’re still in the negative territory in terms of job growth: Minnesota has lost 18,800 jobs since last September.
On a separate but related note, a recent analysis from the Jobs Now Coalition dug deeper into the Twin Cities job market and found the number of job seekers is up 92% since 2000, but job openings are down 68%. They also found that the median wage for metro area job openings is not enough for a family of four with two workers to meet their basic needs.
-Katherine Blauvelt
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Posted by Katherine Blauvelt
October 14, 2008
A webcast of the state’s press conference (just 30 minutes long) on the October Economic Update is now available for viewing on the House website. Check it out. You’ll get a pretty good sense of how Department of Finance officials and state economist Tom Stinson view the status of our economy, budget and the bond market.
It’s worth noting that everyone speaking at the press conference underscored the positive news that revenue for FY 2008-09 has been better than expected. At the same time, it’s understood that we will have a budget deficit for the next budget biennium, FY 2010-11.
Dr. Stinson pointed out a major “X factor” - the recent actions by the Federal Reserve and Treasury to unfreeze the credit freeze. We haven’t seen the effects of this yet, and how successful they are, or are not, will greatly impact how bad the economy gets.
Next up: September unemployment and job numbers in Minnesota will be released this Thursday, October 16th.
-Katherine Blauvelt
1 Comment | Economy | Permalink
Posted by Katherine Blauvelt
October 11, 2008
Hot off the presses (or web site, in this case), as of 2 p.m. today, the state’s October 2008 economic update is out!
The good news: Fiscal Year 2009 revenues are still holding slightly above what was predicted - up over $100 million. Income tax collections were better than expected, though sales tax receipts were worse than expected.
The bad news: For the next budget biennium of FY 2010-11, our economic outlook continues to worsen. Here’s a phrase you don’t want to see in your state’s economic update: “Unless conditions in financial markets change dramatically for the better, however, this recession will be the most severe faced by U.S. residents in the past 25 years.” [emphasis added] Remember back just seven months ago, in February when we got our last economic forecast? Then, the forecast predicted real GDP would grow 2.2% in 2009. Now the same forecasters are estimating GDP growth at 0.2%. That’s a major downward revision, which may very well result in less revenues (and a larger budget deficit).
Again, this is a quarterly economic update, just four pages long. Hang on until December 4th, when November forecast is scheduled to be released. That’s when we’ll learn more about how big the deficit for the next budget biennium could be.
This news today is sure to be of interest to Minnesotans. The economy and jobs are the #1 worry for two-thirds of Minnesotans, according to a new poll reported by MPR.
-Katherine Blauvelt
No Comments » | Budget Process, Economy | Permalink
Posted by Katherine Blauvelt
September 25, 2008
Just a quick addendum to my post the other day on unemployment: Check out the Economic Policy Institute’s interactive map of the August unemployment rate in each state, as well as job gains and losses since December 2007 (the point at which many economists say the economic downturn began).
-Katherine Blauvelt
No Comments » | Economy | Tagged: unemployment | Permalink
Posted by Katherine Blauvelt
September 24, 2008
Last Friday, Nan and I had the opportunity to testify before Governor Pawlenty’s 21st Century Tax Reform Commission (along with Dane Smith from Growth & Justice). I think the three of us brought a fresh perspective to the commission.
My comments focused on the bigger picture – what are businesses taxes paying for? Well, to make Minnesota a good place to do business now and in the future. And that requires a sound infrastructure and a trained workforce.
Education – at all levels – is one of the most important keys to our success. The composition of our workforce is changing quickly. To stay economically competitive in the future, we need everyone to be well-educated (and diversely educated). But if we keep facing state budget deficits – we will continue to erode funding for the services that reduce disparities, stabilize families and improve the quality of our workforce.
An important piece of our state budget is the corporate income tax. To give some perspective of the role it plays in our budget – the state expects to collect $969 million through the corporate income tax in FY 2009. Compare that amount to last session’s budget deficit – $935 million for FY 2009. Corporate taxes are a slice of the pie we need to keep our budget whole.
Some claim that high taxes drive away businesses. I have two responses.
First, the evidence is everywhere that we are entering a new economy. In the future, perhaps the best way to make our state attractive to businesses is to first make our state attractive to the workers they will need. Having a large, well-educated supply of labor would be a crucial part of enticing business to come or stay in Minnesota. An “if you train them, they will come” philosophy.
Second, we should be strategic about the kind of businesses we want to attract. Any reform package will have winners and losers. If we are reforming our businesses taxes, I’d recommend attracting the kind of high-quality businesses we have today – which require strong public investments in our infrastructure and human capital.
As the commission puts together its final report in the next two months, I hope they take a step back and articulate how their recommendations fit into a larger vision for the state. A vision that takes advantage of the changes in the world economy, instead of allowing us to be overwhelmed by them. Perhaps we can see taxes as something constructive, instead of simply an obstacle.
-Christina Wessel
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Posted by Christina Wessel
September 23, 2008
Late last week Minnesota’s job numbers for August came out - and they were pretty bad:
- August’s unemployment rate in Minnesota rose to 6.2% - slightly above the national average of 6.1%.
- There are nearly three times as many unemployed workers in Minnesota as there are job vacancies. This is the worst it has been for job seekers during the history of the job vacancy series - which dates back to fourth quarter 2000.
On top of these unsettling statistics comes a new report from Families USA which tells us that the annual cost of health insurance premiums provided through the workplace in Minnesota rose a whopping 74% from 2000 to 2007 - from $6,957 to $12,090 a year for family coverage. You can safely bet that the growth in the cost of health care coverage outpaced household income growth.
-Katherine Blauvelt
No Comments » | Economy | Tagged: health insurance, unemployment | Permalink
Posted by Katherine Blauvelt
