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Minnesota expecting continued revenue shortfalls; time for strong federal action

Clark Goldenrod
Aug 10, 2020
Last week brought us more sobering news about the ongoing damage that COVID-19 is expected to have on the economy, and by extension the state’s budget. 

In addition to the projected $2.4 billion deficit for the current biennium, Minnesota Management and Budget now projects a $4.7 billion shortfall for the upcoming biennium, FY 2022-23. This new number came in a special revenue update as the state prepared to submit an updated financial picture for upcoming state bond sales, and is based on the same economic outlook used to develop the May interim budget projection.  

And we’ll note that the estimates for FY 2022-23 do not include the cost to keep existing services up with inflation. 

These numbers underscore the damage that COVID-19 is having on the health and economic well-being of Minnesotans and people across the country, as well as state budgets. States across the country are seeing massive revenue shortfalls as a result of the economic downturn. This comes at the same time that they must combat the coronavirus and address greater hardship, demonstrated by growing numbers of Americans going hungry or at risk of losing their housing.

The requirement that states must balance their budgets every budget cycle, regardless of economic conditions or emerging needs, puts states in a bind. 

Bold and swift action at all levels of government is needed to address the needs of struggling Minnesotans and people across the country, and ward off a deeper and longer lasting recession. The federal government has an important role to play during this time. Federal policymakers are developing their next round of COVID response legislation, and additional aid to states, tribal governments, and local governments is an essential piece of ensuring Minnesotans can stay healthy, and keep a roof over their heads and food on the table. Boosting federal aid to the states has a strong economic boost, ensures that key public services can continue, and keeps teachers and other critical public employees on the job. 

The HEROES Act, passed by the U.S. House earlier this summer, proposed sending $540 billion in direct grants to states, tribes, and local governments, and boosting the federal share of funding for health care through Medicaid. Under the direct grants portion of this bill, Minnesota could receive about $8 billion over the next two years. In contrast, the U.S. Senate’s relief bill does not include this aid and is woefully inadequate to meet our current challenges. This is one of the essential decisions before Congressional negotiators.

Minnesota also has resources to draw on in this time of crisis. One of these is its strong budget reserve that’s been built up over the last several years. It’s hard to think of a scenario that would be more appropriate for tapping this so-called “rainy day” fund. 

Further, to meet the challenges of this moment and build the more equitable future that the public demands, Minnesota will need to raise additional state revenues fairly. The economic downturn is not impacting all Minnesotans equally. Those still doing well – profitable corporations and the wealthy – should shoulder more of the responsibility of funding essential public investments to secure the health and well-being of our neighbors, and support the recovery.