State’s budget health takes a $4 billion swing

Minnesota officials received an interim budget projection this week from economic experts that provides a glimpse into the sustained effects the coronavirus pandemic has had on state finances. As a reminder, the February economic forecast projected about a $1.5 billion budget surplus for the Fiscal Year 2020-2021 period. This week’s numbers now project a deficit of $2.426 billion for the same period. That is a nearly $4 billion change in a matter of weeks.

Most of the dip is attributable to a $3.611 billion reduction in expected revenues coming into the state. Spending also is projected to be $391 million higher as the state responds to the pandemic. The state’s budget reserve account remains at $2.359 billion, largely because DFL lawmakers insisted on an automatic savings tool in 2014 that directed up to one-third of each budget surplus to the state’s savings account. Although lawmakers will use caution in dipping into the reserve account, it is a welcome resource that may prevent some harmful budget reductions.

The state’s budget office typically provides a budget forecast in February and November of each year, and those numbers guide the legislature’s funding decisions for the approaching fiscal years. This year, Governor Walz wisely urged the finance agency to produce an interim projection so lawmakers could make better informed decisions. While it is helpful information, finance experts warn that the economic outlook will remain volatile for some time and prolonged budget effects are expected to continue changing.

The legislature is constitutionally mandated to adjourn by May 18. Governor Walz acknowledged that every budget decision cannot responsibly be made in the next 10 days, and that lawmakers should expect to return for special session if needed to address ongoing issues. Lawmakers must find bipartisan agreement on specific issues by Saturday, May 9, and larger bills, such as the bonding bill and tax decisions, will be negotiated in the coming days with a goal of passing larger bills before the May 18 adjournment.