Today’s May 2020 Interim Budget Projection
demonstrates how the current health and economic crisis effecting Minnesotans’ daily lives has implications for the state’s budget as well. The report, out today from Minnesota Management and Budget, projects a $2.4 billion deficit for the current state budget cycle.
The economic numbers that drive this budget update also underscore why Minnesota policymakers must continue to take substantial action to meet the public health and economic security needs of everyday Minnesotans, and draw on the resources available to do so.
Here are some of the key figures in today’s budget projections:
- The state is expecting a $2.4 billion deficit for FY 2020-21. That’s almost a $4 billion drop from the positive balance in the February forecast just a few months ago.
- This change is largely due to significantly reduced anticipated revenues. The state expects to collect $3.6 billion less in the current biennium than projected in February. Declines are expected in all major revenue sources: individual income, sales, and corporate taxes.
- A relatively smaller net increase in state spending of $391 million is expected. The new spending number is based on $550 million appropriated in the legislative session so far, and updated estimates for Health and Human Services, since that’s the budget area most immediately impacted by coronavirus. This figure includes the positive effect of recent federal increase in funding for Medicaid. Without that federal action, the state’s share of spending would have been much higher and there would be a larger deficit.
Today’s budget projection was built on the same economic information we saw in the April economic update
. The forecasters predict a 5.4 percent contraction in the national economy this year. They expect to see the economy start to grow again in the last quarter of 2020 and then more strongly in 2021, but that doesn’t mean we’ll be back to where we would be if not for the pandemic.
There’s a much higher level of uncertainty in these numbers than in most forecasts, many of them unique to the time we’re in, including the path of the pandemic and what additional decisions federal policymakers will make about providing aid to states and local governments.
These numbers will guide the decisions that policymakers make in the remaining weeks of the legislative session, and the months beyond. They remind us of how many of our neighbors are struggling, and the importance of taking swift action to reduce the hardships that Minnesotans and their families are facing as a result of the pandemic, and to start building for the economic recovery.
If we can find any good news today though, it’s that Minnesota has resources to draw on to ensure everyone in our state
is healthy, safe, and financially secure. Federal dollars have an important role to play, and it's essential that federal policymakers do more. Minnesota should tap into the strong budget reserve that’s been built up for times like these. This economic crisis will not be over quickly, and fair taxation should be part of the solution as well. Minnesota can’t afford to pass new tax cuts; instead, those still doing well – profitable corporations and the wealthy – should shoulder more of the responsibility of funding the essential steps to ensure the health and well-being of our neighbors, and to support the recovery.