Budget deficits continue to plague Minnesota: time to end vicious cycle

St. Paul, Minnesota, December 5, 2012 - Today’s state economic forecast shows Minnesota remains mired in a vicious cycle of budget deficits.

The forecast predicts a $1.3 billion positive balance for the current budget cycle, which will go to pay back a portion of the school funding shift. However, there is a $1.1 billion deficit for the FY 2014-15 biennium. When taking the impact of inflation into account, the forecast shows a $2.0 billion deficit in FY 2014-15 and $2.1 billion in FY 2016-17.

“It’s time for Minnesota to move beyond gimmicks and short-term fixes – and support the state’s priorities for the long term,” said Minnesota Budget Project Director Nan Madden. “For the state to have shared prosperity and be economically competitive, we must invest in the building blocks of a strong economy, such as good schools, safe and vibrant communities, and access to affordable health care. We need to reform our outdated tax system so that it raises enough revenues to support our priorities for the long term. At the same time, we have the opportunity to ensure that the system raises revenues more fairly.”

The forecast notes several sources of uncertainty, particularly regarding the federal “fiscal cliff.”

“Congress needs to take a balanced and responsible approach to federal deficit reduction that supports economic growth in the short term and fiscal stability in the long term,” said Madden. “Averting the fiscal cliff without raising revenues would mean more poverty and growing inequality, and further challenges in funding Minnesota’s schools and communities.”

Another source of uncertainty in the forecast was whether the state would receive federal Medicaid dollars that have been put into question by the US Supreme Court decision on the Affordable Care Act.

This arises because Minnesota has not yet fully met the requirements to receive those funds. Fortunately, the state can resolve this uncertainty by covering Minnesotans with incomes up to 138 percent of the federal poverty line under Medicaid. Under this win-win scenario, more Minnesotans will have access to affordable health care coverage, and the state will reduce its health care costs by receiving federal funding.

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