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Minnesota moderately well prepared to respond to looming recession

Clark Goldenrod
Mar 25, 2020
As we grapple with a rapidly changing economy due to the coronavirus and an all but certain recession, a new report shows that our state is moderately well prepared to support Minnesotans’ economic well-being in an economic downturn – and recommends some areas where Minnesota could do better.

The recently released paper from the Center on Budget and Policy Priorities (CBPP) evaluates states on four key areas that best position states and their residents to weather a recession:

  • significant and flexible budget reserves, 
  • strong unemployment insurance systems,
  • accessible Medicaid programs, and
  • affordable higher education. 
These areas prioritize those people who are disproportionately harmed by recessions. People with low incomes are more likely than other workers to lose their jobs in a recession, and people of color are often left with much less income and wealth than they would have otherwise because of “historical racism and ongoing forms of discrimination and bias,” CBPP notes. 

Significant and flexible budget reserves 

State budget reserves should be large enough to address the pressing needs of their residents when revenues drop in an economic downturn, and state reserve policies should be flexible enough to allow policymakers to access the funds when those tough times come. The CBPP finds that on this metric, Minnesota is fairly well prepared for a recession. 

Minnesota has been responsibly adding to its budget reserve for several years, and the fund is finally to the level recommended by Minnesota Management of Budget of $2.3 billion, or 4.9 percent of the state's biennial general fund revenues.  

Without a strong reserve, services like job training, food assistance, or health care might not be there when Minnesotans and their families need them most. 

But building a sizeable reserve isn’t enough on its own – policymakers must be able to access these rainy day funds. Fortunately, Minnesota’s budget reserve is also fairly accessible: there are no supermajority requirements setting a higher bar for policymakers to tap into the reserve, and no limits on how the funds are used.

Strong unemployment insurance 

Unemployment insurance (UI) helps some workers make ends meet by replacing a portion of their lost income when they’re laid off or have had their hours greatly reduced. It also mitigates the impact of a recession; supporting the spending power of its residents also benefits local businesses.  

The eligibility rules for unemployment insurance were originally built for the economy of decades ago, so it’s been important for states to modernize their unemployment programs to meet the needs of more of today’s workers. Minnesota has done fairly well on this standard, having adopted five of seven recommended modernization measures. Minnesota’s unemployment insurance system is also fairly accessible and provides better wage replacement than many other states, reaching 45 percent of eligible workers with average benefits equaling 42 percent of average weekly wages.  

Another plus of Minnesota’s unemployment insurance system is that it allows work sharing, which is when workers who are facing a potential layoff can share their hours with other employees, and then supplement their reduced income with UI. Work sharing helps businesses retain workers during difficult economic times and makes it easier for workers to return to full-time work when the economy bounces back. 

Accessible Medicaid   

Access to health care is always important, but access is even more needed during recessions. Studies have shown that recessions have a negative impact on people’s physical and mental health, particularly for people of color. That’s why public health insurance options like Medicaid and the Children’s Health Insurance Program (CHIP) are crucial supports in a recession. Minnesota has several aspects of a strong Medicaid program, including enacting the Medicaid expansion that provides eligibility for non-elderly adults with incomes up to 138 percent of the federal poverty line ($35,500 for a family of four), no burdensome work reporting requirements, and using existing data to automatically renew eligibility for most people.  

However, the CBPP report notes three ways Minnesota could strengthen Medicaid and CHIP: 

  1. Streamline eligibility and enrollment systems to allow folks to complete applications from a mobile device, scan and upload necessary documents, and renew coverage online.
  2. Implement 12-month continuous eligibility for children enrolled in Medicaid and CHIP.
  3. Minimize costs to participants (including premiums and co-payments) to prevent barriers to keeping health care coverage and accessing necessary medical care.

Affordable higher education

When workers are laid off and it’s difficult to find other employment, people often turn to higher education to boost their skills. This can help both workers and the economy as a whole by building a more skilled workforce. But states often have barriers to accessing education including high tuition or inequitable approaches to student financial aid. 

Minnesota has room to improve in both of these measures. Minnesota is about in the middle of the pack among states in terms of affordability of tuition at its public colleges and universities. The average annual net price of public tuition in Minnesota would take up about a quarter of a typical family’s budget. Minnesota also should make financial aid more equitable. Minnesota currently provides in-state tuition for Minnesota residents who are undocumented, but does not provide comparable financial aid for these students. Minnesota Dreamers – young people who came to the country as children and do not have legal status – receive much less state financial aid than their peers. Last year, both Governor Tim Walz and the House’s budget proposed providing equitable financial aid for these students, making college education more in reach for all of Minnesota’s young people; unfortunately, this was not passed into law.