Budget Reserve in Jeopardy

In 2014, legislation was passed that directs one-third of any projected November surplus to automatically be placed in the budget reserve. The budget reserve has a maximum funding level that is determined by MMB based on a formula. Speaker Daudt and others have implied that they would like to take some of the money deposited in the reserve account and put it back in the General Fund.

  • After facing budget multiple budget deficits prior to 2014, DFL members and the Dayton Administration wanted to restore the budget reserve in a meaningful way to hedge against future economic downturns. As a result, keeping the reserve intact is absolutely critical to the state’s fiscal health.
  • The state has a robust $1.4 billion surplus, yet Republicans are already looking to raid the state’s savings account to over-spend. Last time they were in charge, they drained the reserves, borrowed money from schools and left a $6.2 billion deficit. We won’t let that fiscal mismanagement happen again.
  • Since the statute was enacted, it has been used twice to increase the state’s budget reserve: $183.3 million was transferred in November 2014, and $594 million was transferred in November 2015. The state’s current budget reserve stands at $1.597 billion, or 3.8% of Fiscal Year 2016-2017 revenues. The most recent MMB report recommends a reserve of $2.052 billion.

Plans for dishonest budgeting

Republicans have floated the idea of using dynamic scoring to develop their budgets and spending goals. Dynamic scoring tries to estimate the long-term impact of a policy/fiscal change with a dollar figure. In doing so, they are able to book savings for other expenditures or cut programs to fit their budget goals. Essentially, MMB would attempt to predict the impact a tax cut or tax hike would have on consumer behavior. As an example, this type of policy forecasting could allow legislators to conclude that a tax cut would increase economic activity, and thus actually raise–not lower–tax revenues.

  • Democrats are committed to the current budget and tax scoring measures. Dynamic scoring would allow legislators to cherry-pick data to benefit a preconceived notion. This amounts to dishonest budgeting and creates serious risk within the state’s finances.
  • Alan Greenspan and Federal Reserve Chairman Paul Volker warned Congress in 1995 that dynamic scoring would impede their deficit-reductions because they could lose credibility in the financial markets, sending interest rates soaring. At the time Volcker said if Congress used dynamic scoring, “I won’t believe the numbers.” And Greenspan added that, given the current state of economic forecasting, dynamic scoring amounts to little more than an “informed guess.” – LA Times
Senate DFL Media