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Budget reserve is one tool to put people first during tough times

Clark Goldenrod
Oct 06, 2020
Every year, Minnesota Management and Budget (MMB) gives Minnesotans an estimate of what the state needs in its "rainy day" fund to weather a sudden drop in revenues like we see in a recession. For many years, we’ve responded to this news by writing a blog saying the state is on the right track and saving for a rainy day. But 2020 brought us a global pandemic, which has been accompanied by a national economic downturn and budget crises in the states. 

So instead, this year’s release of budget reserve information is an opportunity to appreciate that because the state has built up a robust budget reserve over time, Minnesota has an important source of resources to do what’s needed to tackle the pandemic and get Minnesotans economically back on their feet.  

We know that when a recession hits, there are more Minnesotans needing a hand to get by, while at the same time the state's revenues shrink. Minnesotans are already seeing this unfold: record numbers of Minnesotans have applied for unemployment insurance this year, and this summer, over 300,000 Minnesota adults were living in households without enough to eat, and 16 percent of Minnesota households had fallen behind on rent. And job loss, hunger, and housing insecurity have all disproportionately fallen on Minnesotans of color due to a legacy of racist structures and policies in our society that have limited access to opportunities in education and employment for those folks. Meanwhile, state revenues are taking a big hit, resulting in a $2.4 billion state budget shortfall predicted for the current two-year budget cycle and a $4.7 billion shortfall for next biennium. 

So in a year of near constant bad news, the latest budget reserve report delivers some good news. MMB’s report shows that the $2.4 billion currently in the account meets the agency’s recommendation. Unfortunately, because of a decision made in the 2019 Legislative Session, $491 million is already scheduled to be withdrawn from the reserve in July 2021.  

The budget reserve is one of three crucial revenue sources for policymakers to draw on in this time when strong action is needed. The budget reserve should be used to respond to the pandemic and protect essential services that Minnesotans turn to in a recession, such as job training, food assistance, and health care. Robust federal aid and raising additional state revenues should also be used to ensure Minnesotans have what they need for their safety and well-being in the near term and to invest in a stronger, more equitable future for all of us. 

We are already seeing how states that don’t have enough resources to draw on are taking actions - like cutting essential services and laying off teachers and other employees - that will worsen hardship and slow the economic recovery. Georgia has cut funding for schools and services for children and adults with developmental disabilities, Maryland is cutting funding for colleges and universities, and Florida has cut funding for community colleges, behavioral health services, and services for people experiencing homelessness. 
 
Minnesota policymakers have done some important, hard work to build up the state's budget reserve during the years the economy was strong. The rainy day they have planned for has come, and it’s time for policymakers to put those dollars to use.