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MN Budget Blog Landing Page

Process & Reforms

  • Raiding the state's budget reserve today could hurt everyday Minnesotans tomorrow

    by Clark Goldenrod | Jul 02, 2019

    As part of the final budget agreement, Minnesota's policymakers decided to take money out of the state's rainy day fund. This was an irresponsible budgeting choice that could hurt struggling Minnesotans during the next recession.

    After years of sound fiscal policy, the state's budget reserve is at nearly $2.1 billion, and is just shy of the 5 percent of general fund revenues that Minnesota Management and Budget currently recommends. A robust budget reserve is a critical part of adequately preparing for the next economic downturn. In the same way a family saves to withstand an unexpected serious illness or job loss, Minnesota builds this reserve so that when a recession hits and state revenues plummet, the state can avoid drastic cuts in critical services and continue to serve Minnesotans’ needs. However, the budget agreement would withdraw $491 million in FY 2022-23, weakening the reserve.

    Here are a few reasons why this was a bad move:
    Graph Past deficits have dwarfed size of current reserve

    • Decisions around using the budget reserve should take into consideration the full economic cycle. The United States has had 10 years of economic growth since the last recession. This is uncommonly long, and along with recent projections of slowing economic growth, it’s likely that the next recession isn’t too far away.
    • When the next recession hits, the needs of Minnesotans will grow - at the same time that the state's resources will shrink. The state's current reserve is not yet to the recommended level to address a common-sized economic downturn and is well short of the types of deficits Minnesota has seen in the past. Reducing the budget reserve by almost one-quarter will leave the state less equipped to respond to a recession, potentially meaning services like job training, food assistance, or health care might not be there with Minnesotans and their families need them most.
    • Taking money from the budget reserve is a temporary solution that policymakers used to fund a structural gap. This year's February economic forecast showed that Minnesota had a surplus for the upcoming FY 2020-21 biennium, but a deficit in FY 2022-23. Policymakers used the budget reserve to fill the gap between the amount of projected revenues and the cost of services. Instead, they should have responsibly raised the revenues needed to sustainably fund services that Minnesotans depend on.

    It’s imperative to build a strong budget reserve when the state’s economic outlook is good, and Minnesota has made laudable progress. But that budget reserve will only work if we keep it strong and only use it when it's needed. Policymakers made a mistake this session in drawing down the budget reserve that could likely result in harmful consequences for everyday Minnesotans in the future.

  • Proposed constitutional amendment would undermine general fund resources and underfund transportation

    by Clark Goldenrod | Apr 11, 2018

    Many of Minnesota’s priorities – from K-12 education, to financial aid for college students, to broadband access – are paid for through the state’s general fund. However, a bill moving through the Senate would threaten the state’s ability to meet Minnesotans’ needs now and in the future.

    Senate File 3837 proposes a constitutional amendment to permanently dedicate certain general fund revenues toward the state’s transportation fund without replacing them with additional revenues. This reduces the amount available to fund other areas of the budget. Transportation is largely funded through dedicated sources, such as the gas tax. As a result, transportation has not traditionally competed with investments like schools, nursing homes, and broadband for the same funding.

    Voters would decide during the 2018 general election whether to accept this change. This proposal is a bad idea for three big reasons:

    1. Senate File 3837 would take money out of the state’s general fund, leaving fewer resources for other priorities. The general fundis the state’s largest and most flexible fund; every two years state policymakers determine how to use it to best meet Minnesota’s current needs and invest in the future when they pass the state budget. By permanently taking away general fund dollars, this bill would make it harder to pay for other important priorities. A preliminary estimate shows that Senate File 3837 would take about $200 million annually out of the general fund starting in FY 2020. That’s roughly what it takes to cover the state’s total general fund investment in Jobs, Economic Development, Housing, and Commerce. It’s important to fund our state’s transportation needs, but permanently shifting funding away from other areas of the budget isn’t the right path.
    2. Speaking of funding state transportation needs, this bill would do little to actually fill the need for better transportation funding. In 2012, the Transportation Finance Advisory Committee determined that Minnesota needs $21 billion over 20 years just to maintain the current status of the state’s transportation system. This proposal doesn’t do that, nor does it get us close to funding a world class transportation and transit system needed for a strong economic future.
    3. Senate File 3837 locks down today’s budget choices and limits our ability to address tomorrow’s needs. By putting this language into our state’s constitution, it will tie future policymakers’ hands when they need to adapt to new funding priorities and needs. Reversing this decision and restoring these dollars to our state’s general fund would involve yet another constitutional amendment and ballot question. This bill would needlessly make it more difficult to fund Minnesotans’ priorities like education, health care, economic development, and the environment.

    -Clark Goldenrod

  • Minnesota’s budget reserve an important source of stability in tough times

    by Clark Goldenrod | Jan 18, 2018

    This fall, the state’s November Budget and Economic Forecast projected a slight state budget deficit for the remainder of the FY 2018-19 budget cycle. Some pointed to the state’s budget reserve as a possible solution for balancing the budget. Last year, state policymakers tapped into the state’s budget reserve to fund health insurance premium assistance.

    For the budget reserve to actually function as the state’s rainy day fund, the reserve has to be allowed to build up so that those funds will be there when they’re really needed. In these uncertain times, here are some thoughts on the importance of a strong budget reserve, and why policymakers shouldn’t be too quick to tap into it.

    1. Decisions around using the budget reserve should take into consideration more than just budgetary projections. That’s not just our opinion. The Minnesota statute on budget reserves notes that, “The use of the budget reserve should be governed by principles based on the full economic cycle rather than the budget cycle.” Right now, the United States is in its ninth year of economic expansion since the last recession. This is uncommonly long, and given the length of the current economic recovery, it’s likely that the next recession isn’t too far away.
    2. During a recession, the needs of Minnesotans grow – just at the time that the resources our state relies on to meet those needs shrink. In the same way a family might save to be able to make it through a long illness or job loss, Minnesota keeps its reserve so when a recession hits, the state can avoid drastic cuts in essential services and continue to serve Minnesotans’ needs.
      Graph Past deficits have dwarfed size of current reserve
    3. Past deficits during recessions have dwarfed the amount currently in our budget reserve. Every year Minnesota Management and Budget sets a goal for the budget reserve that would get the state through most recessions. However, we haven’t saved that much yet, and past recessions have created deficits that were much larger than the current reserve.
    4. A healthy level of reserves gives policymakers the time they need to make responsible and thoughtful budget choices. Reserves provide a financial cushion to respond to budget shocks, whether in response to tough economic times or other dramatic changes. For example, federal policymakers have put forward proposals that would fundamentally weaken federal-state partnerships, reducing federal funding and shifting responsibilities to the states in areas as diverse as food assistance to health care. Should such proposals pass, Minnesota could need to identify and implement other ways of funding essential services, and reserves can help bridge a funding gap during the transition.

    Building strong budget reserves is one important tool to put our state in a strong position to respond to future economic downturns or big federal budget changes. In contrast, moving too quickly to tap into the budget reserve won’t set us up for success in the future.

    -Clark Goldenrod

  • State budget adds to an uncertain future

    by Clark Goldenrod | Nov 27, 2017

    With the state scheduled to release its latest Economic and Budget Forecast next Tuesday, it’s a good time to look back at the state budget passed earlier this year and whether it made it easier or harder for the state to respond to economic bumps or federal tax and budget choices.

    It took five months and a short special session for Minnesota policymakers to complete the primary work of the 2017 Legislative Session: passing the budget for FY 2018-19, which started on July 1. The state had a $1.7 billion projected surplus, resources that could have been used to address two pressing issues: to expand economic opportunity to more Minnesotans, and to prepare for potential federal decisions that would have a profound impact on the state and its residents.

    While policymakers completed the task of getting the budget done, they came up short in terms of meeting those broader goals. The budget makes some important investments in building a broader prosperity, but it uses up nearly all of the surplus, leaving the state with less flexibility to respond to federal funding cuts or economic rough spots. And last month’s economic update reminded us, when state revenues came in below expectations, that a state’s budget outlook is vulnerable to changes in the economic outlook.

    Net General Fund Changes (FY 2018-19)
    Tax Cuts and Aids to Local Governments $648 million
    K-12 Education $485 million
    Transportation $301 million
    Higher Education $210 million
    Public Safety $159 million
    State Government and Veterans $46 million*
    Jobs and Energy $30 million
    Debt Service, Capital Projects $16 million
    Environment $8.1million
    Agriculture $5.7 million
    Health and Human Services -$463 million
    Other Bills (including reinsurance) $142 million
    Total $1.6 billion
    Bottom Line $50 million
    *pre-veto of Legislature’s budget
    Figures shown are changes compared to FY 2018-19 baseline.

     

    The largest portion of the surplus went toward the tax bill: $648 million in FY 2018-19 and $791 million in FY 2020-21. Provisions such as large cuts to the estate tax could reverse the state’s recent progress toward making Minnesota’s taxes more equitable across income levels, and the large and growing size of the tax cuts harms the state’s ability to fund essential services. Bright spots in the tax bill include expansions of the Working Family Credit and the Child and Dependent Care Tax Credit, which support the work efforts of lower-income Minnesotans and their families.

    The second largest use of the surplus is for E-12 Education; per-pupil funding on the basic student formula is increased by 2 percent each year of the biennium — that’s a little less than the cost of keeping up with inflation. The Education budget also expands Early Learning Scholarships so that more young children can benefit from early childhood programs.

    Despite the surplus, this budget makes large reductions in Health and Human Services, cutting its general fund dollars by $463 million in FY 2018-19 and by $273 million in FY 2020-21. The budget also nearly empties the Health Care Access Fund by FY 2021, which puts affordable health care for hundreds of thousands of Minnesotans at risk, even as substantial health care funding cuts are being considered in Washington. One positive component of the HHS budget is that Minnesota improved the Child Care Assistance Program, making it easier for families to afford consistent care for their children. Unfortunately, there are still more than 2,000 families on the waiting list.

    A $301 million general fund boost makes a down-payment on the state’s transportation needs. However, the budget puts transportation in greater competition with K-12 education, higher education and other services for general fund dollars, rather than funding these needs through dedicated transportation funding sources. It also fails to bridge the funding gap to meet the state’s infrastructure needs highlighted by the Transportation Finance Advisory Committee.

    Since it leaves just $50 million of the projected surplus remaining, the state’s biennial budget puts Minnesota in a precarious situation. Budget or economic projections changing even a little bit could mean deficits. With unprecedented uncertainty about the future of federal-state partnerships, the budget put together last session leaves Minnesotans in a vulnerable spot.

    -Clark Goldenrod

  • Senate budget targets call for tax cuts, cuts to health and human services, some investments

    by Clark Biegler | Mar 28, 2017
    The Minnesota Senate recently released its budget targets, which describe how they propose using the state’s projected $1.7 billion surplus in the FY 2018-19 budget. The Senate targets allocate $900 million of the surplus to tax cuts, $742 million to net additional general fund spending, and leave $96 million unallocated in FY 2018-19.

    The targets indicate a similar level of spending and tax cuts in FY 2020-21. The targets are an important milestone in the budgeting process, and they set the size of the budget omnibus bills that the Senate finance divisions need to put together by March 31.
    Senate General Fund Targets (Net) FY 2018-19 FY 2020-21
    Tax Cuts and Aids to Local Governments $900 million $1.0 billion
    Transportation $400 million $500 million
    E-12 Education $300 million $435 million
    Other Bills $265 million $25 million
    Higher Education $100 million $100 million
    Judiciary, Public Safety $59 million $68 million
    Debt Service, Capital Projects $12 million $28 million
    Jobs, Economic Growth $10 million $0
    Veterans, Military Affairs $1.0 million $1.0 million
    Agriculture, Rural Development, Housing $0 $0
    Commerce, Consumer Protection $0 $0
    Energy, Utilities $0 $0
    State Government -$30 million -$30 million
    Environment, Natural Resources -$40 million -$50 million
    Health and Human Services -$335 million -$335 million
    Net Changes $1.6 billion $1.8 billion

    Most of the state's projected surplus, $900 million, is designated for tax cuts and aids to local governments. Senate fiscal staff indicate that only $40 million of this target will go toward aids and credits.

    The targets indicate increased investment primarily in Transportation and E-12 Education.

    The Senate's increased spending in these areas are funded in part by the surplus, but also through a large cut in Health and Human Services. This is disappointing, as the surplus creates an opportunity to invest in Basic Sliding Fee Child Care Assistance after more than a decade of decreased state funding, or boost the Minnesota Family Investment Program's cash grant, which hasn't increased in over 30 years. These investments will be much harder to achieve with such a small target.

    As policymakers decide how to build the state's FY 2018-19 budget, we’ve argued they should be cautious because the budget landscape is likely to change significantly as federal policymakers enact large-scale changes over the next year. They should do this by:
    • Avoiding large tax cuts that would compromise the state's ability to provide essential services and respond to federal funding cuts, and
    • Maintaining a strong budget reserve to be sure the state is equipped to respond to future economic downturns.
    We will be watching closely as the details are filled in, but the Senate targets don't seem to put us on this path.

    -Clark Biegler
  • Strong budget reserve is fiscally responsible, essential to support Minnesotans in next economic downturn

    by Clark Biegler | Dec 14, 2016

    In recent years, Minnesota has taken important steps to build up the state’s budget reserve. And thanks to this good work, the state has almost reached its reserve target of $2.1 billion.

    But even as we’re building a strong budget reserve, some policymakers have suggested weakening the state’s rainy day fund. This is a mistake. A robust budget reserve is a critical part of adequately preparing for the next economic downturn. In the same way a family saves to withstand an unexpected serious illness or job loss, Minnesota builds this reserve so that when a recession hits, the state can avoid drastic cuts in critical services and continue to serve Minnesotans’ needs.

    Graph Past deficits have dwarfed size of current reserveAdequate budget reserves are essential for states because their balanced budget requirements put them in a challenging position in a recession: the needs of their residents grow at exactly the same time as the resources to meet those needs are shrinking.

    While the state currently projects a $1.4 billion positive balance for the upcoming FY 2018-19 budget cycle, the story was very different only a few years ago. Just six years ago, the state faced a $6.2 billion deficit for FY 2012-13. That’s three times what we currently have in our budget reserve. Policymakers made painful cuts, including in financial aid for college, nursing homes and other services for seniors, and services for Minnesotans with disabilities, that made it even harder for struggling Minnesotans to weather the recession.

    Minnesota had a much smaller budget reserve at that time. The one we’re building today will be able to shield struggling Minnesotans from many cuts. Minnesota Management and Budget currently recommends a reserve that is 4.9 percent of general fund revenues. A reserve of this size would well prepare the state to absorb the shock of 95 percent of future economic downturns. Additionally, a healthy level of reserves will afford state policymakers the time they need to make more responsible tax and budget choices in tough economic times, instead of having to make hasty decisions to balance the budget.

    Experts agree that a strong budget reserve makes for responsible budgeting. The state’s Council of Economic AdvisersThe Pew Charitable Trusts, and credit ratings agencies all speak to the importance of strong reserves. Maintaining a healthy reserve also helps keep a positive credit rating because it can show the state has strong fiscal management. Rating agencies Standard and Poor’s and Moody’s look for budget reserves of 4 and 5 percent respectively. A strong credit rating means lower costs in maintaining our infrastructure, including building and repairing our roads, bridges, schools and libraries; and preserving our historic places.

    It’s imperative to build and maintain a strong budget reserve when the state’s budget outlook is good, and Minnesota has made laudable progress. But with many economists estimating that the next recession might not be too far away, policymakers shouldn’t jeopardize the well-being of struggling Minnesotans and the state’s fiscal health by weakening our rainy day savings.

    -Clark Biegler

  • Five takeaways from the November Economic Forecast

    by Clark Biegler | Dec 02, 2016

    The Minnesota Budget Project staff is currently at a conference in Washington, D.C., but given our wonky personalities we just had to take a quick look at today’s state Budget and Economic Forecast. Here are our top five takeaways:

    1. The forecast projects a $678 million positive balance for FY 2016-17. This figure is for the remainder of the current budget cycle, which ends on June 30. And it is after one-third of the positive balance is transferred to strengthen the state’s budget reserve.
    2. The November forecast also projects positive balances in the future. Today’s report shows a $1.4 billion positive balance available for the upcoming FY 2018-19 biennium. This figure assumes that the balance for the current biennium will remain for use in FY 2018-19. This forecast also gives us our first glance at the FY 2020-21 biennium, in which the state has a projected $1.5 billion positive balance.
    3. But the future balances do not take into account what it takes to maintain current levels of service.When the impact of inflation on spending is included, the surplus morphs into a much smaller $73 million in FY 2018-19 and into a $1.7 billion deficit in FY 2020-21. This means that to the extent the surplus is used for additional spending or tax cuts, this will come at the expense of keeping up with current commitments.
    4. The forecast expects weaker economic growth than projected earlier this year. The national economy is still expected to grow over the next several years, but now at a slower 1.5 percent in 2016 and hovering just above 2 percent yearly growth from 2017 through 2021.
      Graph Real gross domestic product annual percent change

    5. The forecasters are moderately confident in these projections, but there’s more uncertainty than usual. IHS Markit, Minnesota’s economic consulting firm, assigns a 65 percent probability to their baseline economic forecast, and a 20 percent probability to their more pessimistic scenario where political uncertainty both in the U.S. and abroad weakens the economy and leads to a short recession starting late next year. The forecasters assign a 15 percent probability to a more optimistic scenario where incomes, housing and consumer spending are boosted by higher productivity, which increases national economic growth next year.

    In the upcoming 2017 Legislative Session, policymakers will put together a budget for the upcoming biennium. The November Economic Forecast gives Governor Mark Dayton the baseline information he needs to put together his proposed budget for the FY 2018-19 biennium that he will release in January.

    As they make tax and budget decisions this session, policymakers should focus on state investments that expand economic security and enable our families, children and seniors to thrive. This includes affordable health care and child care, and targeted tax credits so that Minnesota workers can better support themselves and their families.

    Now is not the time to turn our backs on the progress we’ve made for a more sustainable tax system that allows us to invest in our communities. Large and poorly targeted tax cuts don’t spur economic growth – that hasn’t worked out for states like Kansas.

    We’ve long called on policymakers to make responsible tax decisions. Caution is more important than ever, given today’s modest long-term revenue numbers. Making large tax cuts now would make it harder to effectively respond to what’s ahead, including an uncertain economy and potential large-scale federal changes to tax policy and funding for states. Our own state history has shown that when taxes are cut too much in surplus years, it makes it more difficult for the state to respond to the needs of our residents in the next economic downturn. Instead, we should invest in a more durable prosperity that reaches all Minnesotans.

    -Clark Biegler

  • Building a strong budget reserve is a no-brainer

    by Clark Biegler | Sep 30, 2016

    A healthy budget reserve is a two-for-one deal for states, according to a new report from the Center for American Progress. When states craft responsible policies that build their budget reserves, they are better able to support their residents during an economic downturn and are able to enact progressive tax policies.

    A strong budget reserve helps a state and its residents make ends meet in tough economic times. When state revenues plunged during the Great Recession, many states, including Minnesota, needed to tap into their savings to get by, much like a family would. Even with those savings, states across the U.S. ultimately made cuts in higher education, K-12, services for the elderly and people with disabilities and more. However, the report notes that “rainy day” funds, such as budget reserves, helped states avoid $20 billion in cuts during the recession including cuts to services that people rely on during economic downturns.

    A strong budget reserve also enables states to build progressive tax systems. Currently, all U.S. states, including Minnesota, have regressive tax systems, meaning that low-income households pay a higher percentage of their income in taxes than high-income households. This is due in part to states choosing to rely more on certain revenue sources, like property taxes, that are relatively stable no matter the state of the economy. Unfortunately, these taxes also require low-income households to pay more than their fair share in taxes. With strong budget reserves, states can move toward equitable tax systems and absorb some fluctuation in revenue collections. We’ve seen how Minnesota has started in this direction, both in making tax changes that made our state tax system less regressive and in strengthening our budget reserve.

    Graph Minnesota on its way to healthy budget reserveMinnesota Management and Budget (MMB) annually projects how much the state needs in savings to adequately prepare for downturns in the business cycle, based on factors like state revenue volatility. Their latest Budget Reserve Reportrecommended a target of 4.8 percent of general tax revenues, or $2.0 billion. Currently, the state has $1.6 billion in its reserve, or about three-quarters of the recommended target.

    This stronger reserve amount is due to smart policy changes made in the 2014 Legislative Session, requiring that up to one-third of any positive balance in a November forecast go to the budget reserve until it reaches MMB’s recommended amount.

    It’s important to continue building the state’s budget reserve to soften the shock of inevitable economic downturns and better meet the needs of Minnesotans during tough times. As Minnesota builds its reserve, policymakers should also continue its progress toward a more equitable tax system.

    -Clark Biegler

  • Senate targets prioritize sustainable tax changes, broader opportunity

    by Clark Biegler | Apr 14, 2016

    The Minnesota Senate released its budget targets on Wednesday, which describe how they propose using the state’s projected surplus to make changes to the state’s two-year budget passed last year. The Senate targets allocate $300 million of the surplus to taxes, $489 million to net general fund spending, and leave $111 million unallocated.

    In contrast, the Minnesota House of Representatives’ targets released last week allocated the vast majority of the surplus to taxes and transportation (but did not specify how that figure would be divided between the two areas), and allocated only $2 million of the surplus to new investments in other areas of the budget.

    Senate General Fund Targets (Net)
    Tax Cuts and Aids to Local Governments $300 million
    Equity $91 million
    Broadband $85 million
    Natural Resources, Economic Development and Agriculture $60 million
    E-12 Education $48 million
    Higher Education $48 million
    Judiciary and Public Safety $45 million
    Health and Human Services $43 million
    Transportation and Public Safety $32 million
    State Departments and Veterans $30 million
    Environment and Energy $8 million
    Net Changes (FY 2016-17)
    $789 million

     

    Minnesota has a projected $900 million surplus for the remainder of the current FY 2016-17 biennium and $1.2 billion for FY 2018-19. In a press conference, Senate DFL leadership emphasized much of the new spending in this biennium will be “one-time” and not continue on into the next biennium in order to keep in line with the more limited surplus available in FY 2018-19.

    The Senate targets indicate that addressing equity issues and the lack of broadband in Greater Minnesota are priorities for the Senate this session. For broadband, the Senate targets allocated $85 million compared to the House’s $13 million in FY 2017.

    While the net general fund target for E-12 education is $48 million, the Senate targets note there will be a total of $101 million in new education spending. This is made possible through a loan refinancing option for some school districts, included in both the House and Senate E-12 Education targets, which raises additional state resources.

    The Senate targets do not include bonding, and some of the $111 million that is currently unallocated will be directed toward capital projects.

    The targets are an important milestone in the budgeting process, and they set the size of the budget provisions that the Senate finance divisions are starting to put together. The Senate will combine most of the finance provisions – except for taxes, transportation and capital investment – into one supplemental budget bill next week.

    Taxes and transportation will take a little different path. These are the two areas where little action was taken in 2015, and where reconvened conference committees will negotiate based on last year’s bills plus some new items raised this year.

    As policymakers decide how to allocate the state’s current surplus, we’ve argued they should make sustainable tax reductions focused on working families and invest in broader economic opportunity. We will be watching closely as the details are filled in, but the Senate targets certainly create the opportunity to reach those goals.

  • House budget targets give some answers and leave questions

    by Clark Biegler | Apr 08, 2016

    Minnesota policymakers entered the 2016 Legislative Session with a projected $900 million surplus for the remainder of the current FY 2016-17 biennium and $1.2 billion for FY 2018-19, allowing them the chance to make important investments in a broader and more durable prosperity.

    However, the Minnesota House of Representatives released partial budget targets yesterday that indicate that only $2 million of the surplus will go toward areas of the budget besides transportation. A press release indicates that tax cuts and transportation spending will be the priority for the surplus, although the budget resolution does not specify budget targets for these two areas. The release also provides some details about specific funding priorities, but also demonstrates that those new investments will be funded by shifts and reductions in other areas.

    The targets are an important milestone in the budgeting process, as they set the size of the omnibus budget bills that the House finance committees will need to put together by April 21. These bills will describe proposed changes to the state’s two-year budget passed last year.

    House of Representatives General Fund Targets (Net)
    Jobs and Energy $12 million
    Environment and Natural Resources $3.9 million
    Capital Projects $0
    E-12 Education $0
    Health and Human Services $0
    Higher Education $0
    Public Safety -$1 million
    Agriculture -$1.9 million
    Debt Service -$3.1 million
    State Government -$9.5 million
    Other Bills $2 million
    Net Changes in Spending $2 million


    Among the budget areas receiving targets yesterday, the area getting the largest target is Jobs and Energy, with its $12 million net target to include investments in broadband in Greater Minnesota.

    The House indicates that the Agriculture, Public Safety and State Government committees will reach their targets primarily through carrying over or transferring money and finding efficiencies within their juridictions. The House proposes no net changes in Higher Education. And while E-12 Education and Health and Human Services each has a $0 target, the House indicates that there will be $50 million in additional spending in K-12 spending that is offset by changes elsewhere in the E-12 budget, and there will be “repurposing” of funds within Health and Human Services.

    Taxes and transportation did not receive targets yesterday. These are the two areas where little action was taken in 2015, and where the Legislature has reconvened conference committees whose starting point for negotiations are last year’s bills. Last year’s House tax bill contained $2 billion in tax cuts, and grew dramatically over time because it contained a number of phased-in tax cuts.

    The targets released today make it clear that the House holds a very different vision than Governor Mark Dayton, whose supplemental budget proposal released last month included sustainable tax reductions focused on working families, investments in broader economic opportunity, and funding boosts for services for some of the most vulnerable Minnesotans. The Senate is expected to release their targets later this month.

    -Clark Biegler

  • New report shows Minnesota is half way towards budget reserve goal

    by Clark Biegler | Oct 22, 2015

    Progress accumulates in steps. And Minnesota is taking critical steps to ensure we’re better prepared for the next economic downturn.

    The state should have $2.0 billion in its budget reserve to be able to meet the needs of Minnesotans in tough economic times. That’s according to Minnesota Management and Budget’s (MMB) most recent Budget Reserve Report, an annual projection of how much the state needs in savings to adequately prepare for the next downturn in the business cycle.

    Similar to the way a family might have a savings account for emergency expenses or to weather a job loss, Minnesota keeps a budget reserve so that when a recession hits, the state can continue to serve Minnesotans’ needs. Because the need for public services often increases during a recession, a reserve is especially important to avoid drastic cuts to health care and other services that Minnesotans turn to when times are tough.

    By evaluating the state’s current revenue system, MMB regularly produces a budget reserve recommendation designed to prepare the state to absorb the shock of most future economic downturns.

    Building and maintaining a healthy level of reserves are also indications of sound fiscal management that can help the state earn a stronger bond rating. Similar to having a good credit score, a strong bond rating allows Minnesota to borrow funds to build roads, bridges and other infrastructure at a lower cost.

    For FY 2016-17, MMB recommends a target of 4.8 percent of general tax revenues, or $2.0 billion. Currently, the state has $994 million in the reserve, or under half of the recommended target.

    We’re making progress with sound policy decisions. In the 2014 Legislative Session, policymakers took a step toward strengthening the state’s long-term fiscal health by requiring that up to one-third of any projected surplus in the yearly November Economic Forecast automatically go to the state’s budget reserve until it reaches the MMB target.

    Last session, policymakers left $865 million unallocated from the state’s projected surplus. Combined with good news of higher than expected revenues in the July and October economic updates, this indicates that Minnesota will likely have another strong surplus in the upcoming November Forecast. That’ll bring us closer to ensuring that Minnesota has enough resources to weather the next bout of tough economic times.

    -Clark Biegler

  • Legislative session meant many opportunities missed, some taken

    by Clark Biegler | Jul 22, 2015

    With an almost $2 billion projected surplus to work with in setting the next two-year budget, policymakers had opportunities to make targeted new investments after more than a decade of flat or declining funding in many public services. However, there was also a threat that policymakers would pass large tax cuts that would crowd out such investments, and harm the state’s ability to sustainably fund our needs.

    We’ve taken a closer look at this session’s tax and budget decisions in our latest issue brief, Opportunities Missed and Taken in the 2015 Legislative Session. In particular, we measured how well the final budget meets the goals of increasing opportunity and economic well-being for all Minnesotans and ensuring a fair and sustainable tax system.

    With a divided government, policymakers offered very different views of how to best serve Minnesotans, and it took a special session before they reached agreement on all parts of the budget. The final budget agreement allocated 23 percent of the surplus for supplemental spending in the 2015 fiscal year, and 31 percent for additional spending in the FY 2016-17 budget cycle. That left $865 million unallocated, which will contribute to the resources available in the 2016 Legislative Session.

    Pie chart How the projected surplus was used




    In the final budget agreements, policymakers made some important progress toward shared economic prosperity, like increasing access to affordable child care and keeping down the cost of higher education.

    However, there were also serious lost opportunities, such as the failure to expand earned sick time to more Minnesota workers; to allow all Minnesotans to have the economic opportunities that come with a driver’s license regardless of their immigration status; or to expand tax credits for working families, such as the Child and Dependent Care Tax Credit and the Working Family Credit. And some Minnesota families will face higher costs for health care because of severe cuts to MinnesotaCare.

    Policymakers also did not pass a tax bill or fund significant new investments in transportation, despite much attention and debate on these issues. Importantly, the dangerously large tax cuts that were proposed are likely to be debated among policymakers again next year.

    The substantial amount of the surplus left unallocated, combined with recent positive news about state revenues, makes it highly likely that Minnesota will have another surplus when the 2016 Legislative Session starts next March. Key priorities should be continuing the state’s progress toward a sustainable and equitable tax system, opening windows of economic opportunity to more Minnesotans, and ensuring that Minnesotans who hit a rough patch have the support they need.

    For more on the 2015 Legislative Session, check out our brief.

    -Clark Biegler

  • Budget bills passed during special session avert shutdown

    by Ben Horowitz | Jun 15, 2015

    By the early hours of June 13, Minnesota’s House and Senate passed the budget bills responsible for education, jobs and energy, and environment and agriculture in a special session. This prevented a shutdown of those portions of state government when the state’s next two-year budget cycle begins on July 1. Legislators also passed a bonding bill authorizing infrastructure projects around the state and a Legacy bill allocating dedicated funds for the arts and environment.

    The education bill spells out $526 million in new general fund resources for FY 2016-17, including $346 million to increase funding for school districts on the general education formula by 2 percent in both FY 2016 and FY 2017. Though the education bill does not include the statewide universal pre-kindergarten initiative that was a priority for Governor Mark Dayton, it does devote $96 million to increase funding for initiatives focused on young children, including:

    • $48 million for early learning scholarships;
    • $3.5 million for the state’s early learning and child care rating system;
    • $31 million for School Readiness;
    • $2.8 million for Early Childhood Family Education; and
    • $10 million for Head Start.

    The bill also includes $5 million for the Northside Achievement Zone, St. Paul Promise Neighborhood and new education partnership pilots that help children succeed by coordinating support for families at school and in their communities.

    Along with the increased funding for Basic Sliding Fee Child Assistance in the health and human services budget, these important investments mean that more Minnesota children will thrive in stable, nurturing care, and fewer parents will need to pass up on jobs or opportunities to go back to school because they can’t afford child care.

    The jobs and energy omnibus budget bill increases general fund spending by $33 million. The final version includes an additional $2.5 million to support employment for persons with disabilities or mental illness, and $2.5 million for housing for people with serious mental illnesses.

    Combined, the omnibus bills for environment and agriculture result in a $26 million decrease in general fund spending. That includes a $64 million cut from the environmental portion and a $39 million increase in agricultural spending.

    Along with the bills already passed and signed by Dayton, these budget bills will leave $865 million unallocated from the state’s projected FY 2016-17 surplus.

    -Ben Horowitz

  • Legislators preparing to set budget priorities

    by Clark Biegler | Mar 23, 2015

    Last week many concerned Minnesotans testified on the needs of our state at the House Ways and Means Committee hearing on budget resolutions.

    Policymakers are getting ready to form the state’s FY 2016-17 budget, and as part of this process, the House and Senate put together their budget resolutions. These resolutions set maximum amounts for the state budget’s general fund revenues and expenditures – basically setting the size of the budget “pie,” and the amounts set aside in the budget reserve and cash flow accounts, also known as our “rainy day” funds.

    Each session, the House and Senate put forth the outlines of their budgetary visions through these resolutions. Once these are set, the legislative bodies put together their targets for the finance committees, which is where we’ll start to see the budget really take shape in the omnibus spending and tax bills.

    Given the context of the state’s projected $1.9 billion surplus, policymakers should continue charting a path where more Minnesotans have access to economic opportunity.

    While Minnesota’s economy has finally turned a corner, testifiers at the Ways and Means hearing highlighted areas of needed investments, including: supportive services that help seniors and people with disabilities live at home, opportunities for the state’s students to make sure they’re ready for college and the workforce, and improvements to our roads and bridges. We have also written about the uneven economic recovery and the need to invest in those Minnesotans who have been left behind.

    Policymakers also expressed great interest in the size of our state’s budget reserves. In the 2014 Legislative Session, policymakers improved our budget reserve to better meet the needs of Minnesotans during economic downturns, and dedicated up to one-third of any surplus in the November Forecast to building the reserve. In the most recent November Forecast, this meant that $183 million was added to the reserve. Now, at $1.3 billion, Minnesota’s total rainy day funds are much closer to what the state needs to weather a potential recession, which Minnesota Management and Budget estimates is $2.2 billion.

    As policymakers decide what to do with the projected positive balance, they should continue to make targeted investments in a future of opportunity for all Minnesotans.

    The House is expected to release its budget resolution tomorrow, with the Senate’s resolution expected Thursday or Friday.

    -Clark Biegler

  • Keys to a healthy state budget

    by Clark Biegler | Apr 01, 2014

    Minnesota has recently turned the corner from more than a decade of frequent budget deficits to a $1.2 billion surplus. But unforeseen events and the inevitable ups and downs of the business cycle create volatility in state economies and state budgets. These events, like extreme weather or recessions, can’t be avoided, so it’s important for states to address volatility so they can meet the needs of their residents even in the face of the unexpected.

    A recent report from The Pew Charitable Trusts, Managing Uncertainty: How State Budgeting Can Smooth Revenue Volatility, explores uncertainty and revenue volatility in state budgets. I recently had a chance to hear Pew’s research presented to the House Tax Committee.

    Pew recommends three strategies for states to evaluate and strengthen their responses to volatility:

    • Regularly study volatility in their budgets and make policy recommendations to manage uncertainty.
    • Release budget forecasts as close as possible to the time budget decisions are made.
    • Develop mechanisms to create a healthy budget reserve.

    Minnesota already does well on some of these strategies, and has taken recent steps to improve how it deals with volatility.

    Minnesota’s most recent “deep dive” into volatility was the 2008 Minnesota Budget Trends Commission report. The Commission made a number of recommendations in order to more adequately respond to the level of volatility in Minnesota’s state budget, including: a larger budget reserve, avoiding permanent tax or spending changes that would take the budget out of balance in the following biennium, and refilling a depleted reserve within two biennia. The state could benefit from comprehensively studying volatility more regularly.

    Minnesota also does well on the strategy of releasing timely budget forecasts. Minnesota releases two economic forecasts each year, one in November and one in February. The November Forecast informs the development of the Governor’s budget, and the February Forecast provides more current data to policymakers as they make budget choices each spring.

    Minnesota recently took some steps forward along the lines of Pew’s recommendation of building reserves that would better meet the needs of Minnesotans in the next economic downturn. The recently passed House File 1777adds $150 million to the reserve. It also requires that Management and Budget set a recommended reserve level each year, and requires that one-third of any positive balance in a November forecast go to the budget reserve until it reaches MMB’s recommended amount. In January, Minnesota Management and Budget recommended reserves of $1.9 billion. That figure is substantially higher than the prior budget reserve target of $653 million.

    Volatility in state budgets is inevitable. But with careful planning, states can be better prepared and avoid drastic cuts to vital services when a downturn hits.

    -Clark Biegler

  • Bill to boost budget reserve passes Senate committee

    by Clark Biegler | Mar 14, 2014

    As Minnesota enjoys a projected surplus after more than a decade of frequent budget deficits, policymakers are considering steps for a more robust “rainy day” fund to help the state better respond to the next economic downturn.

    Yesterday the Senate Finance Committee passed a bill authored by Senator Rod Skoe that would increase the state’s budget reserves (Senate File 2250) and set a mechanism to add funds to the reserves in future years.

    Minnesota Management and Budget currently recommends reserves of $1.9 billion, so that the state is well prepared for the next economic downturn. However, current budget reserves of $661 million and a cash flow account of $350 million only amount to half of this figure.

    Senator Skoe’s bill would make several changes to state laws regarding the budget reserve. It would:

    • Allocate $150 million of the positive balance from this year’s February Forecast to the reserve.
    • Automatically transfer up to a third of any future positive budget balances into the reserve account until it reaches a certain level.
    • Recalculate the target amount needed in the reserve account each year, so that the budget reserve target represents a percent of the state budget (instead of a fixed dollar amount as it does now).

    Current law requires that any positive balances go toward the budget reserve until it is filled to $653 million.

    Policymakers should strengthen our budget reserves to prepare for the next downturn in the business cycle. Adequate reserves soften the shock of future budget shortfalls and enable the state to better meet the needs of Minnesotans during tough times. The current level is not enough to protect us against the next recession. We are glad to see that the Senate is making the budget reserves a priority.

    Senate File 2250 will next be heard in the Senate Tax Committee.

    -Clark Biegler

  • Minnesota one step closer to fully reversing school funding shifts

    by Christina Wessel | Oct 02, 2013

    Many of us may have missed a piece of good news this week, amid major events like MNsure launching and the federal government shutting down: Minnesota is significantly closer to repaying the funding owed to our schools.

    On Monday, Minnesota Management and Budget closed the books on FY 2013 (which ended on June 30) and announced a $636 million positive balance in the general fund. The additional revenue is the result of both higher than expected tax collections and lower than expected spending.

    Due to a provision passed during the 2013 Legislative Session, the entire $636 million will go to reversing the school funding shift. The money will start flowing to schools by mid-October.

    The $636 million takes us very close to fully repaying our schools. The state still has $238 million to go. According to state law, the first priority for any future positive balance is to finish paying off the shift. That means if the state’s November 2013 Economic Forecast shows any additional good news, the first $238 million of any positive balance will go to school districts.

    -Christina Wessel

  • Five months that changed Minnesota

    by Barb Brady | Jun 17, 2013

    January 2013: Minnesota faced a $1.1 billion budget shortfall, the state was not raising revenues needed to fund its priorities and the tax system was increasingly unfair.

    May 2013: Policymakers agreed to a budget that will eliminate the budget shortfall, make the tax system fairer and once again invest in Minnesota's economic success.

    Our latest issue brief examines how that turnaround happened.

    Budget Choices in the 2013 Legislative Session Take Minnesota in a Better Direction credits budget decisions made in the 2013 Legislative Session with putting the state back on track.

    According to our analysis, the state budget that goes into effect July 1 raises adequate revenues to address the deficit without deep cuts to services; makes the tax system fairer; and invests in schools, affordable college education, health care, workforce development and other public services that are crucial for a strong future.

    By increasing the use of an income tax based on the ability to pay and reducing what low- and middle-income Minnesotans pay in property taxes, the budget makes significant progress toward tax fairness.

    Our analysis examines details of those decisions, focusing on new investments and changes that affect low-income and vulnerable Minnesotans.

Projections & Trends

  • Minnesota's budget reserve is strong, let's keep it strong

    by Clark Goldenrod | Nov 07, 2019
    Every year, Minnesota Management and Budget gives Minnesotans an estimate of what the state needs in its "rainy day" fund to weather a sudden drop in revenues like we might see in a recession. The latest report brought us some good news. The state is now almost 90 percent of the way to the recommended level for the budget reserve. 

    Minnesota Management and Budget now recommends a budget reserve of $2.3 billion, or 4.9 percent of the state's biennial general fund revenues. They come to this figure by evaluating the stability of the state's revenues, and then put forth a number that they are fairly confident would exceed most deficits when the economy takes a turn. 
    chart showing budget reserve status and goal
    Minnesota builds its budget reserve so that when a recession hits and state revenues plummet, the state can avoid drastic cuts in critical services and continue to serve Minnesotans’ needs as they strive to get through tough times. When state revenues plunged during the Great Recession, many states, including Minnesota, needed to tap into their savings to get by, much like a family would. Rainy day funds, such as budget reserves, helped states avoid $20 billion in cuts during the last recession, including cuts to services that people rely on during economic downturns. But even with those reserves, states ultimately made cuts in higher education, K-12 education, services for the elderly and people living with disabilities, and more. 

    Thanks to several years of responsibly adding to the state's budget reserve, Minnesota's rainy day fund is the strongest it's ever been, and that's great news for Minnesotans. However, in the 2019 Legislative Session, policymakers decided to weaken the reserve by taking nearly $500 million out on July 1, 2021, in order to help balance the future budget. This would deplete almost a quarter of the reserve's balance, and is an especially risky move considering the last several state economic updates have indicated a possible recession in the near future. The October Economic Update gave a 35 percent chance for an economic scenario in which there's a short recession in 2020. This means that the scheduled withdrawal could happen at a time when the state may most need its budget reserve to meet the needs of Minnesotans. 

    Policymakers have done some important, hard work to build the state's budget reserve. During the 2020 Legislative Session, Minnesota policymakers should prepare for the future by prioritizing building on that work and strengthen the budget reserve further.

  • Minnesota's October Economic Update shows good news for revenues, but the future's not all roses

    by Clark Goldenrod | Oct 22, 2019

    The recently released October Revenue and Economic Update gave us some improved news about the state’s economic and budget landscape. The quarterly report from Minnesota Management and Budget (MMB) showed that state revenues for the past several months have come in above expectations. It also reported that the national economy is expected to continue to grow at a fair pace this year. However, that growth is expected to taper off over the next few years, and the state's economic forecasters note a higher chance that a more pessimistic scenario for the economy will play out.

    Some of the top takeaways from the Update include:

    1. State revenues have come in above projections. Revenues for the first quarter of FY 2020 (July to September of this year) came in $217 million above projections; that’s 4.4 percent more than projected in the state’s February 2019 Economic Forecast. MMB believes this increase is primarily the result of the timing of income taxes, and not increased economic activity. 

    2. Long-term economic growth is still expected to be low, but is somewhat improved over prior estimates. The national economic forecasters have decreased their predictions for national GDP growth for 2019, from the 2.4 percent predicted in February to 2.3 percent in the October Update. For the next few years, while they still expect growth to taper off, they are more optimistic about the level of growth than before. Growth estimates for 2021 and 2022 are expected to be 2.0 percent and 1.7 percent respectively, an improvement over the estimates from the February forecast. These higher growth estimates are predicated on stronger expected consumer spending. 

    graph showing state economic growth from October 2019 economic update

    3. Unemployment is expected to remain low. Nationally, unemployment was 3.5 percent in September, its lowest point since December of 1969. The state's economic consultant expects this rate to be the lowest that unemployment reaches during this business cycle, with the unemployment rate starting to rise slightly in 2021. 

    4. Forecasters are somewhat confident in their projections. The forecasters are less certain about their baseline economic scenario than they were in February. They assign a 55 percent chance that their baseline forecast is correct. They also give a 35 percent chance for a more pessimistic scenario in which there’s a recession starting next year, and assign a 10 percent probability to a more optimistic scenario. This reflects greater uncertainty than in February, when forecasters gave the baseline projection a 60 percent probability and the pessimistic scenario a 25 percent probability.

    This month's Update brought us good short-term news: revenues are up, and the economy is growing at a good pace for now. However, we know from other data, such as recent releases from the U.S. Census Bureau, that these numbers mask the fact that economic growth by itself is not enough to bring about broad prosperity, and many in Minnesota are not sharing in the benefits of today's economy. The state's next legislative session starts in February 2020, just four months from now. Policymakers should take the opportunity next session to advance policies so that more Minnesotans can thrive in today's economy, no matter who they are or where they live.

    We estimated that the budget that policymakers passed in the 2019 Legislative Session would result in about a $120 million surplus for FY 2020-21, after adding to the budget reserve at the time of the November 2019 Forecast. The October Update suggests this number could go up, given the higher revenues coming in to date, or go down, because of anticipated slower economic growth in 2021. 

    One important way that policymakers can prepare in a time of increased uncertainty around the economy is by building a strong budget reserve. After years of sound fiscal policy, the state's budget reserve is at nearly $2.1 billion, and is just shy of the 4.9 percent of general fund revenues that MMB currently recommends. A robust budget reserve is a critical part of adequately preparing for the next economic downturn. In the same way a family saves to withstand an unexpected serious illness or job loss, Minnesota builds this reserve so that when a recession hits and state revenues plummet, the state can avoid drastic cuts in critical services and continue to serve Minnesotans’ needs as they strive to get through tough times. Last session, policymakers agreed to withdraw nearly $500 million from the reserve in FY 2022-23; they should take steps in the 2020 session to instead strengthen the budget reserve. 

    The next look at the state’s fiscal and economic health will come in early December with the release of the November Budget and Economic Forecast, which will give a full picture of state revenues, expenditures, and economic projections.

  • Minnesota's July Economic Update shows higher revenues, economic growth for now

    by Clark Goldenrod | Jul 12, 2019

    The recently released July Revenue and Economic Update gave us somewhat good news about the state’s economic and budget landscape. The quarterly report from Minnesota Management and Budget (MMB) showed that state revenues for the past fiscal year have come in slightly above expectations. It also reports that the national economy is expected to grow this year, but then that growth will taper off over the next few years.

    Some of the top takeaways from the Update include:

    1. State revenues are coming in above projections. A preliminary look at the state’s revenues for FY 2019, which ended on June 30, shows they came in $636 million above projections; that’s 2.8 percent more than projected in the state’s February 2019 Economic Forecast. The increase is primarily due to higher income taxes received. A complete picture of FY 2019 revenues will be in the October update.

    2. Long-term economic growth is still expected to be low. The national economic forecasters have increased their predictions for national GDP growth for 2019, from the 2.4 percent predicted in February to 2.6 percent in the July update. Next year though, they still expect growth to start tapering off, reaching 1.6 percent in 2022. This slowdown is predicted given the context of slowing global growth, the effects of tariffs on businesses, and constrained employment growth from a tight labor market.

    Graph US Real GDP 

    3. National unemployment rate expected to remain low for now. Nationally, unemployment was 3.7 percent in June, and is expected to drop to as low as 3.5 percent later this summer before drifting back up next year.

    4. Forecasters are somewhat confident in their projections. The forecasters are less optimistic about their baseline scenario than in February. They assign a 55 percent chance that their baseline forecast is correct. They also give a 35 percent chance for a more pessimistic scenario in which there’s a recession next year, and assign a 10 percent probability to a more optimistic scenario. This reflects greater uncertainty than in February, when forecasters gave the baseline projection a 60 percent probability and the pessimistic scenario a 25 percent probability.

    This week's Update brings us good short-term news: revenues are up, and the economy is growing at a good pace this year. However, lower economic growth projected in the future and a greater risk of a recession in the next year should give us pause. With potentially gloomy news in the future, policymakers should be focusing on strengthening the state's budget reserve. However, earlier this year policymakers decided to take almost $500 million out of the state's rainy day fund in 2021 to help fund the state's budget. This is an irresponsible budgeting choice that could mean that the state is drawing additional funds from the state's rainy day fund right when Minnesotans will need those funds the most.

  • Raiding the state's budget reserve today could hurt everyday Minnesotans tomorrow

    by Clark Goldenrod | Jul 02, 2019

    As part of the final budget agreement, Minnesota's policymakers decided to take money out of the state's rainy day fund. This was an irresponsible budgeting choice that could hurt struggling Minnesotans during the next recession.

    After years of sound fiscal policy, the state's budget reserve is at nearly $2.1 billion, and is just shy of the 5 percent of general fund revenues that Minnesota Management and Budget currently recommends. A robust budget reserve is a critical part of adequately preparing for the next economic downturn. In the same way a family saves to withstand an unexpected serious illness or job loss, Minnesota builds this reserve so that when a recession hits and state revenues plummet, the state can avoid drastic cuts in critical services and continue to serve Minnesotans’ needs. However, the budget agreement would withdraw $491 million in FY 2022-23, weakening the reserve.

    Here are a few reasons why this was a bad move:
    Graph Past deficits have dwarfed size of current reserve

    • Decisions around using the budget reserve should take into consideration the full economic cycle. The United States has had 10 years of economic growth since the last recession. This is uncommonly long, and along with recent projections of slowing economic growth, it’s likely that the next recession isn’t too far away.
    • When the next recession hits, the needs of Minnesotans will grow - at the same time that the state's resources will shrink. The state's current reserve is not yet to the recommended level to address a common-sized economic downturn and is well short of the types of deficits Minnesota has seen in the past. Reducing the budget reserve by almost one-quarter will leave the state less equipped to respond to a recession, potentially meaning services like job training, food assistance, or health care might not be there with Minnesotans and their families need them most.
    • Taking money from the budget reserve is a temporary solution that policymakers used to fund a structural gap. This year's February economic forecast showed that Minnesota had a surplus for the upcoming FY 2020-21 biennium, but a deficit in FY 2022-23. Policymakers used the budget reserve to fill the gap between the amount of projected revenues and the cost of services. Instead, they should have responsibly raised the revenues needed to sustainably fund services that Minnesotans depend on.

    It’s imperative to build a strong budget reserve when the state’s economic outlook is good, and Minnesota has made laudable progress. But that budget reserve will only work if we keep it strong and only use it when it's needed. Policymakers made a mistake this session in drawing down the budget reserve that could likely result in harmful consequences for everyday Minnesotans in the future.

  • Minnesota’s April Economic Update shows small improvements

    by Clark Goldenrod | Apr 17, 2019

    The recently released April Revenue and Economic Update gave us good news about the state’s economic and budget landscape. The quarterly report from Minnesota Management and Budget (MMB) showed that the most recent state revenues have come in slightly above projections, and that the national economy is now expected to grow a little more slowly this year and slightly faster next year.

    Some of the top takeaways from the Update include:

    1. State revenues are coming slightly above projections. The state’s revenues for February and March came in $84 million above projections; that’s 3.2 percent more than projected in the state’s February 2019 Economic Forecast. The slight increase is primarily due to higher income taxes received. The Update notes that the state will have a fuller picture of total tax year 2018 income tax payments later in April.

    2. Overall, future national economic growth is expected to be just above February forecast projections. For this year, economic growth is expected to be slightly slower than earlier predicted. The economic forecasters predict 2.3 percent national GDP growth for 2019. In 2020 and beyond, national economic growth is still expected to grow at a slow pace – but it is now expected to grow slightly faster than predicted in February.

    Graph US real GDP annual percent change

     

    3. National unemployment rate expected to remain low. The U.S. unemployment rate has been holding steady at 3.8 percent. It is expected to drop to 3.6 percent in 2019, before creeping back up in 2020. The Update reports that labor force participation has increased very slightly since a year ago, and recent job growth has been above the monthly average.

    4. Forecasters are fairly confident in their projections, but give higher likelihood that things will be worse rather than betterThe forecasters assign a 60 percent chance that their baseline forecast is correct. They also give a 30 percent chance for a more pessimistic scenario and assign a 10 percent probability to a more optimistic scenario.

    This new Update tells us some good news, but not much has changed since the February forecast. With such slow projected economic growth, the national economy is less resilient, and any sudden shocks to the economy could turn into a recession. This Update points to the importance of the budget reserve the state has built up to prepare for the next economic downturn. It also demonstrates the importance of protecting funding sources for services that Minnesotans count on, including by maintaining the provider tax. This major funding source for affordable health care will expire on January 1, 2020, if policymakers don’t act, resulting in the loss of about $700 million per year in funding for affordable health care and healthy communities.

    This is the last quarterly revenue update that policymakers will get before the legislative session ends in May. As they work toward the tax and budget decisions they will enact this year, they should prioritize sustainable revenues that fund quality education, health care, child care, roadways, and transit that reach every community across the state.

    -Clark Goldenrod

  • Minnesota’s February budget forecast reinforces the need for resources to fund the investments Minnesotans count on

    by Clark Goldenrod | Feb 28, 2019

    Policymakers’ primary task in the upcoming legislative session will be to set a budget for the FY 2020-21 biennium, and today’s February Budget and Economic Forecast released by Minnesota Management and Budget gives an updated measurement of the economic context for those decisions. The forecast shows a $1.1 billion surplus for FY 2020-21 and an $11 million deficit for FY 2022-23.

    The numbers from today are lower than what was shown in the November forecast. As we’ve noted before, the United States is in one of the longest economic expansions on record. But economic growth has shown signs of slowing down over the past year, and that’s now starting to cut into how much revenue the state can expect to bring in. What hasn’t changed is the importance of making tax and budget choices that continue building broader prosperity that includes all Minnesotans. (Keep reading to the end for our full take.)

    The February forecast compares what the state would be expected to spend on schools, roads, and other public services to how much revenue the state would expect to bring in under existing laws and current economic projections. Some of the top data points from the February Forecast and their implications include:

    1. The forecast projects a $1.1 billion surplus for the upcoming FY 2020-21 biennium. This includes the positive balance for FY 2018-19.
    2. The forecast projects a slightly negative balance in the future. Today’s report shows an $11 million deficit for the FY 2022-23 biennium, which means projected revenues are expected to be just slightly lower than projected expenditures. However…
    3. …The future balances do not take into account what it takes to maintain current levels of state services. Keeping up with inflationary costs for Minnesota’s current commitments would cost an additional $1.1 billion in FY 2020-21 and $2.7 billion in FY 2022-23. In other words, today’s figures are built on the assumption of flat funding for most areas of the budget.
    4. The forecast shows the potential harm of letting the provider tax expire. By FY 2023, the Health Care Access Fund will have a deficit of over $900 million if the provider tax is allowed to expire. This fund primarily goes to affordable health care.
    5. The forecast expects weaker economic growth than projected in the November 2018 forecast. Every forecast includes a best guess at what the national economy will do over the next few years. Today’s report expects the economy to continue growing, but predicts more sluggish national GDP growth, slowing down substantially to 1.4 percent by 2023. 

      Graph US real gross domestic product annual percent change
    6. There are a number of sources of uncertainty. Minnesota’s economic consultant, IHS Markit, assigns a 60 percent probability that their baseline economic forecast accurately predicts how the future economy will perform, a 25 percent probability to a more pessimistic scenario, and a 15 percent probability to a more optimistic scenario.
    7. This is one-time good news. The surplus is largely due to temporary, not ongoing, factors. The short-term economic boost from the 2017 federal tax bill will fade, global economic growth is expected to weaken, and a strong U.S. dollar reduces net exports.

    Today’s budget numbers underscore the importance of maintaining and strengthening revenues that fund services that Minnesotans count on. Lower national economic growth will put a damper on future state revenues. In addition, Minnesota revenues continue to be eroded by large and growing cuts in the estate tax, tobacco taxes, and business property taxes that were passed in 2017.

    Governor Tim Walz’s budget proposal released last week takes several steps toward ensuring the state has reliable funding for the services Minnesotans want and expect. His plan would repeal the scheduled expiration of the health care provider tax, protecting this critical source of funding for affordable health care options that reach more than one million Minnesotans. He also proposes increasing the gas tax – which has lost about one-third of its buying power since 2000 – to help address the state’s transportation needs. The gas tax increase also makes it possible to return certain sales tax revenues that are currently being diverted to transportation back into the General Fund, where they can be used for investments like quality education and health care.

    Today’s forecast release is the start of the next phase in developing the state’s two-year budget. Walz will update his budget proposal to reflect these new forecast numbers and stay in balance, and the Minnesota House and Senate now have the numbers they use to start putting together their proposals for the FY 2020-21 budget.

    The numbers may have changed, but what Minnesotans are counting on has not: sustainable revenues that fund quality education, health care, child care, roadways, and transit that reach every community across the state.

    -Clark Goldenrod

  • Minnesota’s January Economic Update shows reason for caution

    by Clark Goldenrod | Jan 16, 2019

    The recently released January Revenue and Economic Update gave us unsettling news about the state’s economic and budget landscape. The quarterly report from Minnesota Management and Budget (MMB) shows that recent state revenues have come in lower than anticipated. It also reports that the national economy is expected to continue to grow, but that growth will become quite slow. These two factors could be a potential warning that the $1.5 billion state budget surplus projected in the November Forecast may be too optimistic.

    Some of the top takeaways from the Update include:

    1. State revenues for the most recent quarter came in below projections. The state’s revenues for November and December came in $102 million below projections; that’s 2.7 percent less than projected in the November 2018 Economic Forecast. The decrease is largely due to lower-than-expected income taxes received. When the January revenues are in, MMB will have a better idea whether this is just a timing issue or an indicator of a more significant trend.

    2. Economic growth is expected to be lower. The national economic forecasters predict weaker national GDP growth for 2019 and beyond. The January update predicts 2.5 percent growth in 2019, down from the 2.7 percent predicted in November. Growth is then expected to slow to 1.4 percent by 2023. The slower growth is due to several factors, including tariffs between the U.S. and China and a strong U.S. dollar.

    Graph US real GDP annual percent change

     

    3. The Update does not include the impact of the current federal government shutdown. The economic outlook calculations were done before the shutdown began, and so does not include the impact. However, the state’s economic forecasters expect that this shutdown will place a further drag on national economic growth.

    4. National unemployment rate remains low. Nationally, unemployment was 3.9 percent in December, up slightly from November. The Update explains, however, that this slight increase is primarily due to more people who didn’t have a job now feeling confident enough to start looking for one. Since they’re actively looking for jobs but not yet employed, they’re now included in the unemployment numbers.

    5. Forecasters are fairly confident in their projections. The forecasters assign a 60 percent chance that their baseline economic forecast is correct. They also give a 25 percent chance for a more pessimistic scenario in which there’s a recession starting next year, and assign a 15 percent probability to a more optimistic scenario.

    We’ll get a more complete look at the state’s economic health when the February Forecast comes out later next month. But if we see similar economic growth projections in the February Forecast, that will likely mean lower revenues coming in, and policymakers will have fewer resources to work with as they build the FY 2020-21 budget.

    With such slow projected economic growth, the national economy is less resilient, and any sudden shocks to the economy could turn into a recession. It points to the importance of continuing to make investments that support Minnesotans striving to make ends meet. It also underlines why they should protect funding sources for services that Minnesotans count on, including by maintaining the provider tax, a major funding source for affordable health care that will expire on January 1, 2020, if policymakers don’t act.

    -Clark Goldenrod

  • Minnesota’s November budget forecast shows good news for right now, but the future’s looking iffy

    by Clark Goldenrod | Dec 06, 2018

    Today’s forecasted surplus gives policymakers an opportunity to build toward shared prosperity that reaches Minnesotans across the state, whether in the Twin Cities or Greater Minnesota, or whether black, white, or brown.

    Minnesota Management and Budget released the state’s November Budget and Economic Forecast. The November forecast estimates what the state would spend on schools, roads, and other public services under existing laws and current economic projections, and compares it to how much revenue the state would expect to bring in. This forecast is our first full look at Minnesota’s budget landscape since the end of the 2018 Legislative Session, and sets the stage for budget and tax decisions in 2019.

    Many budget decisions made over the past eight years put Minnesota in a better financial position: balancing the books, crafting a more equitable tax system, and making investments in those Minnesotans who face the greatest barriers to thriving in today’s economy. Governor-elect Tim Walz and the 2019 Legislature should build on this momentum as they respond to the major fiscal issues of the upcoming session, including the scheduled expiration of the health care provider tax and updating the state’s tax code.

    Here are our top takeaways from the forecast:

    1. With a surplus in the current biennium, the state was able to contribute to Minnesota’s budget reserve. One-third of the FY 2018-19 surplus plus other statutory allocations totaling $491 million were automatically transferred to the state’s budget reserve.
    2. The forecast projects a $1.5 billion surplus for the upcoming FY 2020-21 biennium. This includes the positive balance for FY 2018-19. Policymakers’ primary task in the upcoming legislative session will be to set a budget for the FY 2020-21 biennium, which starts on July 1, 2019.
    3. The November forecast also projects a future structural balance. Today’s report shows a $456 million positive balance for the upcoming FY 2022-23 biennium. However…
    4. …The future balances do not take into account what it takes to maintain current levels of state services. Keeping up with inflationary costs on Minnesota’s current commitments would cost another $1.2 billion in FY 2020-21 and $2.9 billion in FY 2022-23. In other words, these projections are built on the assumption of flat funding for most areas of the budget.
    5. The forecast documents start to show the potential impact of letting the provider tax expire. By FY 2023, the Health Care Access Fund will have a deficit of almost $1 billion if the provider tax is allowed to expire.This fund primarily goes to health care for one million Minnesotans.
    6. The forecast expects weaker long-term economic growth than projected in the February 2018 forecast. Every forecast includes a best guess at what the national economy will do over the next few years, and today’s report expects the economy to continue growing. But national GDP growth is expected to be more sluggish than earlier anticipated, slowing down substantially to 1.4 percent by 2023.
    7. There are a number of sources of uncertainty. IHS Markit, Minnesota’s economic consultant, assigns a 60 percent probability to their baseline economic forecast, a 25 percent probability to a more pessimistic scenario, and a 15 percent probability to a more optimistic scenario.
    8. This is one-time good news. The surplus is largely due to temporary, not ongoing, factors. The short-term economic boost from the federal tax bill last year begins to fade late next year, and global economic growth is expected to weaken.

    What do these numbers mean for the tax and budget choices that policymakers will be facing during the 2019 Legislative Session?

    This economic recovery is only weakly boosting living standards for everyday Minnesotans. In the upcoming session, we expect lawmakers to consider policies such as expanding access to earned safe and sick leave and paid family leave, which make a big difference in family economic security and require only a very modest financial investment from the state.

    Policymakers also face key questions about how to maintain funding for essential services. They should take action this session to reverse the scheduled expiration of the health care provider tax, which is a critical source of funding for health care for more than one million Minnesotans, as well as investments in healthier communities. Allowing the provider tax to expire would leave a $680 million annual revenue shortfall. Policymakers are also likely to consider increasing the gas tax – which has lost about one-third of its buying power since 2000 – and other ways of meeting the state’s transportation and transit needs.

    And, policymakers will again take up the challenge of maintaining Minnesota’s values in our tax code in the wake of a federal tax bill that violates principles of fairness and fiscal responsibility. Last session, although they were not able to agree to a broader tax package, Minnesota policymakers appeared to reach consensus that the state should update our tax code in ways that protected Minnesotans – including families with children, seniors, and people with disabilities – from the tax increases they would see if the state simply conformed to federal tax law changes. Today’s forecast numbers underscore that Minnesota cannot afford to enact additional permanent tax cuts for profitable corporations and the highest-income households, who got the biggest windfalls from the federal tax bill.

    Finally, considering the forecast’s warnings about a weaker future economy, now is still a good time to continue to strengthen our state’s budget reserve. After today’s transfer, the current reserve is about 93 percent of the $2.2 billion recommended by Minnesota Management and Budget. Any additional transfers to the reserve will better enable Minnesotans to get through most recessions that might come our way. This is a responsible way to use one-time funding to better ensure Minnesotans get the supports they need to make it through tough times.

    -Clark Goldenrod

  • October Economic Update shows higher state revenues, but mixed news on economic growth

    by Clark Goldenrod | Oct 12, 2018

    The recently released October Revenue and Economic Update gave us mixed news about the state’s economic and budget landscape. The quarterly report from Minnesota Management and Budget (MMB) showed that the state revenues have come in higher than anticipated. It also reports that the national economy is expected to grow in the near term, but then that growth will taper off over the next few years.

    Some of the top takeaways from the Update include:

    1. State revenues for the most recent quarter came in above projections. The state’s revenues for July to September came in $282 million above projections; that’s 5.9 percent more than projected in the state’s February 2018 Economic Forecast. The increase is a result of a variety of factors, including higher income and corporate taxes received, as well as a higher than expected surplus in a state workers’ compensation fund.

    2. State revenues for the past fiscal year came in slightly above projections. The state’s revenues for FY 2018, which ended on June 30, came in $376 million above projections, or 1.7 more than was projected in the February forecast.

    3. Long-term economic growth is expected to be lower. The national economic forecasters predict stronger national GDP growth for 2018. The October update predicts 2.9 percent growth in 2018, up from the 2.7 percent predicted in February. In 2019, growth is projected to be 2.8 percent, very similar to the 2.7 percent anticipated in February. However, growth is then expected to slow to 1.6 percent by 2021. The slower growth in 2020 and beyond is due to several factors, including the effects of the new tariffs between the U.S. and China.

    Graph US real GDP annual percent change 

    4. National unemployment rate expected to remain low. Nationally, unemployment was 3.7 percent in September, and is expected to drop to 3.5 percent on average in 2019. Job growth has slowed slightly, with the economy adding around 134,000 jobs in September, compared to the average of 200,000 jobs per month earlier this year. This slowdown is expected to be a temporary effect of Hurricane Florence, which hit the Southeast coast in September.

    5. Forecasters are fairly confident in their projections. The forecasters assign a 60 percent chance that their baseline forecast is correct. They also give a 25 percent chance for a more pessimistic scenario in which there’s a recession starting next year, and assign a 15 percent probability to a more optimistic scenario.

    The next legislative session starts in just a few months, and policymakers will need to put together the state’s next two-year budget. In early December, we’ll see the state’s November Budget and Economic Forecast, which will give us an updated and more complete picture of what resources will be available as policymakers and the public engage in next year’s budget debate.

    After the conclusion of this past legislative session, we estimated that the state could expect a surplus of about $300 million for FY 2020-21. The increased revenues measured in this week’s economic update suggest that number could get larger by the time the November economic forecast comes out. However, the lower expected economic growth in the longer term could also dampen future revenues.

    -Clark Goldenrod

  • Minnesota’s July Economic Update shows higher state revenues, but mixed economic news

    by Clark Goldenrod | Jul 12, 2018

    The recently released July Revenue and Economic Update gave us mixed news about the state’s economic and budget landscape. The quarterly report from Minnesota Management and Budget (MMB) showed that the state revenues for the past fiscal year have come in on track. It also reports that the national economy is expected to grow in the near term, but then that growth will taper off over the next few years.

    Some of the top takeaways from the Update include:

    1. State revenues are coming in above projections. A preliminary look at the state’s revenues for FY 2018, which ended on June 30, shows they came in $348 million above projections; that’s 1.6 percent more than projected in the state’s February 2018 Economic Forecast. The increase is primarily due to higher income taxes received. A complete picture of FY 2018 revenues will be in the October update.

    2. Long-term economic growth is expected to be lower. The national economic forecasters predict stronger national GDP growth for 2018, from the 2.7 percent predicted in February to 3.0 percent in the July update. In 2019, growth is projected to be the same as anticipated in February at 2.7 percent. However, growth is then expected to slow to 1.4 percent by 2021. This change in projected future economic growth is due to several factors, including the fading impact of stimulus from the federal tax bill passed last year, and the effects of the new tariffs between the U.S. and China.

    Graph US Real GDP annual percent change

    3. National unemployment rate expected to remain low. Nationally, unemployment was 4.0 percent in June, and is expected to drop to 3.4 percent in 2019. Job growth has been steady, with the economy adding around 200,000 jobs per month this year.

    4. Forecasters are fairly confident in their projections. The forecasters assign a 65 percent chance that their baseline forecast is correct. They also give a 20 percent chance for a more pessimistic scenario in which there’s a short recession next year, and assign a 15 percent probability to a more optimistic scenario.

    Next legislative session, policymakers will need to put together the state’s next two-year budget. After the conclusion of this past legislative session, we estimated that we could expect a surplus of about $300 million for the next biennium. The increased revenues in this week’s economic update suggest that number could get larger by the time the next full economic forecast comes out this winter. However, there’s some data in this report that causes us concern; the lower economic growth in the longer term could substantially dampen future revenues.

    The next quarterly update will be in October, right before the state’s November Budget and Economic Forecast, which will give us an updated picture of what resources will be available as policymakers and the public engage in next year’s budget debate.

    -Clark Goldenrod

  • April Economic Update shows revenues on track

    by Clark Goldenrod | Apr 18, 2018

    The recently released April Revenue and Economic Update gave us good news about the state’s economic and budget landscape. The quarterly report from Minnesota Management and Budget (MMB) showed that the most recent state revenues have come in on track, and that the national economy is expected to grow at about the same rate as predicted earlier this year.

    Some of the top takeaways from the Update include:

    1. State revenues are coming in on track with projections. The state’s revenues for February and March came in $6 million above projections; that’s 0.2 percent more than projected in the state’s February 2018 Economic Forecast. The slight increase is primarily due to higher income and sales taxes received. The Update notes that the state will have a fuller picture of total tax year 2017 income tax payments later in April.

    2. Economic growth is expected to be roughly on track with the February forecast. The national economic forecasters continue to predict 2.7 percent national GDP growth for 2018. In 2019, growth is projected to be higher than earlier anticipated at 2.9 percent, but then is expected to taper off to 1.7 percent by 2021.

    Graph US Real GDP annual percent change 

    3. National unemployment rate expected to remain low, with strong consumer spending expected. Nationally, unemployment has been holding steady at 4.1 percent. That is the lowest it’s been in 17 years. Unemployment is expected to drop to 3.6 percent in 2019, roughly what the February forecast projected.

    4. Forecasters are fairly confident in their projectionsThe forecasters assign a 65 percent chance that their baseline forecast is correct. They also give a 20 percent chance for a more pessimistic scenario and assign a 15 percent probability to a more optimistic scenario.

    This new update tells us that not much has changed since the February forecast. However, there’s still need for caution this legislative session. As we’ve written before, there’s still considerable uncertainty around the economy and federal funding.

    This is the last quarterly revenue update that policymakers will get before the legislative session ends in May. As they work toward the tax and budget decisions they will enact this year, they should be mindful of the considerable uncertainty of these times, and seek to strengthen the state’s ability to sustain support for our schools, families, and communities.

    -Clark Goldenrod

  • February forecast brings welcome news, but uncertainty still reigns

    by Betsy Hammer | Feb 28, 2018

    Today the state’s Minnesota Management and Budget released the February Budget and Economic Forecast. The February forecast compares what the state would be expected to spend on schools, roads, and other public services under existing laws and current projections for economic growth, and how much revenue the state would expect to bring in. This forecast will set the stage for making budget and tax decisions in the current legislative session.

    Today’s forecast showed a $329 million surplus for FY 2018-19, the current budget cycle, and $313 million for FY 2020-21. These numbers are an improvement over what was shown in the November forecast. Since November, federal policymakers reauthorized funding for the Children’s Health Insurance Program (CHIP) and enacted a major tax bill. And at the state level, policymakers passed funding for the Legislature just this past week. Today’s projections takes into account these recent changes.

    Here are our top takeaways:

    1. The forecast projects a $329 million surplus for FY 2018-19. That equals less than one percent of the total two-year budget, which runs through June 30, 2019.
    2. The February forecast also projects a future structural balance. Today’s report shows a $313 million positive balance for the upcoming FY 2020-21 biennium. However…
    3. The future balance does not take into account what it takes to maintain current levels of state services. Keeping up with inflationary costs on Minnesota’s current commitments would cost another $1.2 billion in FY 2020-21. In other words, these projections are built on the assumption of flat funding for many areas of the budget.
    4. The forecast expects stronger short-term economic growth than projected in the November 2017 forecast. Every forecast includes a best guess at what the national economy will do over the next few years, and today’s report expects the economy to continue growing. National GDP growth is expected to be faster: 2.7 percent in both 2018 and 2019, rather than the 2.5 and 2.2 percent expected in November. However, this boost is short lived. By 2021, economic growth is expected to drop below November’s estimates to 1.9 percent. These figures include a modest annual increase 0.1 to 0.3 percentage points through 2021 from the expected economic impact of the federal tax bill.
    5. There are a number of sources of uncertainty. IHS Markit, Minnesota’s economic consultant, assigns a 65 percent probability to their baseline economic forecast, a 20 percent probability to a more pessimistic scenario, and a 15 percent probability to a more optimistic scenario. In addition, this forecast includes projected revenue increases that are anticipated to occur as a result of the federal tax bill; however, predicting how people and businesses will respond to the federal tax bill is tricky and we’re in some uncharted territory. And while federal policymakers have put proposals on the table that would deeply cut federal funding to the state, the forecast does not assume any changes to the federal budget that have not yet been enacted.
    6. This is one-time good news. It’s important to note that the surplus is largely due to temporary, not ongoing, factors. The federal tax bill is expected to bring short-term economic growth, but that impact is expected to be followed by slower economic growth in future years.

    What do these numbers mean for the tax and budget choices that policymakers will be facing during the 2018 Legislative Session?

    Governor Mark Dayton’s supplemental budget proposal for FY 2018-19 is expected to be released mid-March, and the Legislature will make choices this session about how to respond to both the news in the state forecast and the federal tax bill passed last year. Since policymakers passed the state budget for the FY 2018-19 biennium last year, any budget and tax changes passed this year will be supplemental to what’s already in law.

    Policymakers must keep in mind that underlying the positive forecast figures is a higher than usual uncertainty, and they must avoid using temporary boosts in state revenues to fund ongoing commitments. Failing to heed these cautions could create funding shortfalls in the future and weaken the state’s ability to respond to potential cuts in federal funding or an economic downturn.

    These principles are especially important to bring into the task of responding to the federal tax bill. This sweeping and complicated piece of legislation traveled quickly through Congress and passed days before Christmas, which means tax policy experts and the public are still working to understand the implications. Because Minnesota’s individual income tax and corporate tax systems use federal tax law as their starting point, Minnesota policymakers have to decide whether to follow those new federal changes.

    Their response should be grounded in Minnesota values, including treating all taxpayers fairly and the importance of fiscal responsibility and maintaining the revenues needed to sustainably fund the state’s priorities. Initial analysis shows that fully conforming to the federal tax bill would raise revenues from both the individual income tax and corporate taxes. But the impact would vary – some Minnesotans would face tax increases, such as families with dependents and people receiving property tax refunds, while others would see tax cuts. Taking targeted action to avoid raising taxes on low- and middle-income taxpayers should be a priority. Minnesota also can’t afford to enact large additional state tax cuts for those who will be receiving the largest federal tax cuts: profitable corporations and the highest-income households. Doing so would reverse the state’s progress toward a tax system that is more equitable to Minnesotans of all income levels.

    Given the high level of uncertainty – about the economy and future federal funding – now is a good time to strengthen our state’s budget reserve. In fact, if this surplus had occurred in November, under state law about $117 million would have gone into the reserve. That addition would bring the reserve to 79 percent of the level recommended by Minnesota Management and Budget to be able to get through most recessions that might come our way.

    In a time of great uncertainty, policymakers have an opportunity to work toward making our state a place where everyone can thrive.

    -Clark Goldenrod

  • Minnesota’s January economic update shows welcome news for revenues and economy

    by Clark Goldenrod | Jan 17, 2018

    The recently released January Revenue and Economic Update gave us somewhat welcome news about the state’s economic and budget landscape. The quarterly report from Minnesota Management and Budget (MMB) showed that recent state revenues have come in above projections, and national economic growth is expected to be slightly higher for the next few years than previously projected.

    Some of the top takeaways from the Update include:

    1. State revenues are coming in above projections. The state’s revenues for November and December 2017 came in $219 million above projections; that’s 5.9 percent more than projected in the state’s November 2017 Economic Forecast. This is primarily due to higher income taxes received, but some of this may simply be a matter of timing. The Update notes that the tax bill recently passed by Congress likely encouraged some taxpayers to pay taxes due in January in 2017.

    2. Slightly higher national economic growth projected over next few years. The national economic forecasters predict 2.7 percent national GDP growth for 2018. Growth projections for both 2018 and 2019 are higher than anticipated in the November forecast. This higher growth is expected to dissipate by 2020 though, in which projections are slightly below the November forecast. The update notes that the faster economic growth is driven by stronger consumer spending and business investment, while the federal tax bill should also have a “modest” impact on economic growth.

    Graph US Real GDP annual percent change

    3. Unemployment nationally expected to remain low, strong consumer spending expected. Nationally, unemployment in December was 4.1 percent. Unemployment is expected to drop slightly further over the next few years. Consumer spending is also forecasted to be strong, supported by rising wages and other variables.

    4. Forecasters are fairly confident in their projectionsThe forecasters assign a 65 percent chance to their baseline forecast. They also give a 20 percent chance for a more pessimistic scenario and assign a 15 percent probability to a more optimistic scenario.

    This week’s Update brings us good news, but there’s still reason for caution. At the federal level, policymakers have proposed serious funding cuts that will make it more difficult for Minnesota to continue to make the investments that strengthen our state and build shared prosperity. In 2017, President Donald Trump and the U.S. House and Senate put federal budget plans on the table that include massive cuts to health care funding, non-defense appropriations, and assistance to low- and middle-income families through the portion of the budget that includes SNAP food assistance, Pell grants, and student loans. Many of these proposals would substantially reduce federal funding to state and local governments, making it more difficult to meet the needs of Minnesotans.

    The next look at the state’s fiscal and economic health will be the release of the February Budget and Economic Forecast, which will give us a full picture of state revenues, expenditures and economic projections. The November forecast projected a slight deficit in the current biennium. This week’s update indicates a more positive picture is likely in the February forecast.

    -Clark Goldenrod

  • Minnesota’s November budget forecast shows deficits amid high uncertainty

    by Clark Goldenrod and Nan Madden | Dec 05, 2017

    Predicting the future is a tricky business, especially in uncertain times. But nonetheless today’s state budget and economic forecast is important because it marks the first comprehensive look at Minnesota’s budget landscape that incorporates the budget passed in the 2017 Legislative Session. State policymakers used almost the entire projected $1.7 billion surplus when putting together the FY 2018-19 budget. The largest piece of the surplus went to the $648 million tax bill, followed by additional investments in K-12 education, transportation, and higher education. Using nearly all of the projected surplus left our state much more vulnerable to even slight changes in budget or economic projections, as these forecast figures bear out.

    The November Budget and Economic Forecast released by Minnesota Management and Budget compares what the state would be expected to spend on schools, roads, and other public services under existing laws and current projections for economic growth, how much revenue the state would expect to bring in, and whether those numbers line up. The forecast does not include the likely economic or state budget impact of broad policy changes being considered in Washington, including the proposed tax and health legislation or likely future cuts to federal funding.

    Here are our top takeaways after a quick review of the forecast:

    1. The forecast projects a $188 million deficit for FY 2018-19. That’s less than 1 percent of the total two-year budget, which runs through June 30, 2019. Assuming that the Legislature’s funding is restored would add another $114 million for a total deficit of $302 million.
    2. The November forecast also projects future deficits. Today’s report shows a $586 million negative balance for the upcoming FY 2020-21 biennium.
    3. The future balances do not take into account what it takes to maintain current levels of services. Keeping up with inflationary costs on our current commitments would cost another $1.3 billion in FY 2020-21. In other words, these projections are built on the assumption of flat funding for many areas of the budget.
    4. The forecast expects weaker economic growth than projected in the February 2017 forecast. The national economy is still expected to grow over the next several years, and as a result boost wages and salaries. But in today’s forecast, national GDP growth is expected to be slower: 2.2 percent for 2017 rather than the 2.3 percent expected in February, and 0.1 to 0.2 percentage points less each year in 2018, 2019, and 2021. That results in lower projected state revenues.
    5. There’s more uncertainty than usual. Because of the high level of uncertainty about federal tax and budget decisions – and because of the above-average length of the current economic recovery – this forecast has more uncertainty than usual. IHS Markit, Minnesota’s economic consultants, assigns a 65 percent probability to their baseline economic forecast, a 20 percent probability to a more pessimistic scenario, and a 15 percent probability to a more optimistic scenario.

    There are always some unknowns in any forecast, but given the high number of them this year, Governor Mark Dayton said he will wait to produce his supplemental budget proposal until after the February 2018 Forecast.

    The state’s budget picture could improve – for example, if federal policymakers finally reauthorize funding for the Children’s Health Insurance Program (CHIP). But we can’t take our eyes off the serious threats posed by federal proposals to fundamentally weaken the federal-state partnership and step back from commitments to the safety net. These would result in a large loss of funding to the state and to essential federal services that Minnesotans count on.

    Some noted today that tapping into the state’s budget reserve would be one way to address any minor shortfalls. We shouldn’t be too quick to go there. This shortfall is nothing compared to the multi-billion dollar deficits the state has faced during economic downturns. Given the length of the current economic recovery, it’s likely that the next recession isn’t too far away.

    State policymakers may not be able to control the decisions that come out of Washington or the course of the national economy. But their priority should be to put the state in a strong position to respond to federal changes and to support Minnesotans most likely to struggle in an economic slowdown.

    Getting ready for what’s ahead is more important than ever to make Minnesota a state where everyone can thrive.

    -Clark Goldenrod and Nan Madden

     
  • October Economic Update shows state revenues and expected economic growth down

    by Clark Goldenrod | Oct 12, 2017

    This week’s October Revenue and Economic Update gave us somewhat unwelcome news about the state’s economic and budget landscape. The quarterly report from Minnesota Management and Budget (MMB) showed that recent state revenues have come in below projections, and national economic growth is expected to be slightly lower for the next few years than previously projected.

    Some of the top takeaways from the Update include:

    1. State revenues are coming in below projections. The state’s revenues for the first quarter of FY 2018 (July to September 2017) came in $66 million below projections; that’s 1.4 percent less than projected in the state’s February 2017 Economic Forecast. This is primarily due to lower income taxes received. One spot of good news is the state’s FY 2017 revenues. While preliminary estimates showed revenues coming in 0.5 percent below expectations, the final revenue numbers for FY 2017 are in and were right on target.

    2. Slightly lower national economic growth projected over next few years. The national economic forecasters predict 2.2 percent national economic growth for 2017. Despite recent natural disasters, which have delayed economic growth, this is only slightly below the projection from the February forecast. Also, the state’s economic forecasters have changed their assumptions about federal policy action. Previously, the forecasters assumed that federal policymakers would enact tax reductions and increase infrastructure spending, which would boost growth in 2018. They have now removed those assumptions from the model they use to predict how the national economy will fare, bringing down expected growth in 2018 from 2.7 percent to 2.4 percent.

    Graph US Real GDP annual percent change 

    3. Unemployment nationally expected to remain low. Nationally, unemployment in September declined to 4.2 percent. The annual unemployment rate for 2017 is expected to be 4.4 percent, which is expected to improve slightly to 4.3 percent until 2020.

    4. Despite uncertainty around federal policy changes, forecasters are fairly confident in their projectionsThe forecasters assign a 65 percent chance to their baseline forecast. They also give a 20 percent chance for a more pessimistic scenario and assign a 15 percent probability to a more optimistic scenario.

    This week’s Update brings us reason for caution. At the federal level, policymakers are proposing serious funding cuts that will make it more difficult for Minnesota to continue to make the investments that strengthen our state and build shared prosperity. President Donald Trump, and the U.S. House and Senate have all put federal budget plans on the table that:

    • Significantly cut into annual non-defense appropriations, a substantial portion of which go to state and local governments;
    • Include massive cuts to health care funding, again much of which goes to states to fund Medicaid, which helps Minnesotans of all ages access the health care they need; and
    • Make deep cuts in assistance to low-income and middle class families through the entitlement portion of the budget, which includes SNAP food assistance, Supplemental Security Income for seniors and people living with disabilities, unemployment insurance, Pell grants and student loans. Again, some of these cuts would push funding responsibility to the states, and others would increase hardship among Minnesota residents and pressure for the state to respond.

    This week’s update should give Minnesota’s policymakers pause. The budget that they passed in the 2017 Legislative Session left very little of the projected surpluses, even though there were warning signs that the job of meeting the needs of Minnesotans is likely to get a lot harder.

    The next look at the state’s fiscal and economic health will come in early December with the release of the November Budget and Economic Forecast, which will give us a full picture of state revenues, expenditures and economic projections.

    -Clark Goldenrod

  • Minnesota's July Economic Update shows slightly lower revenues, economic growth on track

    by Clark Biegler | Jul 12, 2017
    This week’s July Revenue and Economic Update gave us mixed news about the state’s economic and budget landscape. The quarterly report from Minnesota Management and Budget (MMB) showed that state revenues have come in slightly below projections but national economic growth is expected to be on track with earlier projections for the next few years.

    Some of the top takeaways from the Update include:

    1. FY 2017 revenues just below projections. The state's 2017 fiscal year ended on June 30, and revenues for the year came in $104 million below projections; that’s 0.5 percent less than projected in the state's February 2017 Economic Forecast. This is due primarily to lower than expected income tax receipts and higher than expected income tax refunds. These are only preliminary numbers, and the final FY 2017 revenues will be included in the October economic update. However, the lower income tax revenues are consistent with other data that suggest that wage and salary income is growing more slowly than earlier projections. Another factor that could be influencing the lower income tax payments noted in the Update is that some taxpayers may have held off on realizing capital gains in 2016, anticipating potential federal tax cuts.

    2. Continued national economic growth projected for 2017 and onward. The national economic forecasters continue to predict 2.3 percent national economic growth for 2017 and for growth to jump to 2.7 percent in 2018; these are the same economic predictions as in the February forecast. However, the state's economic forecasters note that this projected growth is based on the assumption that federal policymakers will enact tax reductions and increase infrastructure spending. Without these federal policy changes, growth in 2018 is expected to be around 2.3 percent.

    3. The national unemployment rate is expected to fall further. Despite a slight recent uptick in the national unemployment rate, it has decreased by 0.4 percentage points this year to date. The national unemployment rate is expected to fall to 3.9 percent by 2019.

    4. Despite uncertainty around federal policy changes, forecasters are fairly confident in their projections. The forecasters assign a 60 percent chance to their baseline forecast. They also give a 25 percent chance for a more pessimistic scenario and assign a 15 percent probability to a more optimistic scenario.

    This week's Update brings us relatively good news on the national economy, but reason for caution. These numbers don't measure the impact on Minnesota of potential serious federal funding cuts. President Donald Trump has proposed, and the U.S. House and Senate have considered, deep cuts to federal funding to the states. For example, the Senate's health care bill would cut health care funding to Minnesota by about $2 billion over 18 months, and threaten the health care of about 1 million Minnesotans. In addition, Trump's budget proposes about $18 billion in cuts to grants to states and local governments that support critical services, such as housing and poverty-reduction efforts.

    The budget that Minnesota policymakers passed in the the 2017 Legislative Session left very little of the projected surpluses on the bottom line. As a result, the responsibility of meeting the needs of Minnesotans in the face of uncertainty has gotten tougher.

    -Clark Biegler
  • Minnesota's April Economic Update shows higher revenues, economic growth on track

    by Clark Biegler | Apr 13, 2017
    This week’s April Revenue and Economic Update gave us some good news about the state’s economic and budget landscape. The quarterly report from Minnesota Management and Budget (MMB) showed that state revenues have come in above projections and national economic growth is expected to be on track with earlier projections for the next few years.

    1. Recent revenues are above projections. February and March 2017 revenues came in $23 million above projections; that’s 0.9 percent more than projected in the February 2017 Economic Forecast. This is due primarily to higher than expected income tax receipts, which the Update notes could be a timing issue that evens out as the filing season progresses.

    2. Continued national economic growth projected for 2017 and onward. In 2017, the U.S. economy is growing about as predicted in the February forecast, at 2.4 percent. The Update expects 2.6 percent growth in 2018, then settle to a little over 2.0 percent yearly growth from 2019 to 2021.

    Graph US Real GDP

    3. The national economy is improving. The latest jobs numbers show that the U.S. labor market continues to improve, and nationally, unemployment is expected to drop to 4.0 percent by 2019.

    4. Significant areas of uncertainty remain. The Update notes there is not enough information to incorporate the potential impact of federal policy changes to health care, immigration, trade, and business investment incentives into their economic model. These caveats aside, the forecasters assign a 60 percent chance to their baseline forecast. They also give a 25 percent chance for a more pessimistic scenario where the U.S. sees a brief recession in 2018 as trade relations worsen and businesses delay investment. They assign a 15 percent probability to a more optimistic scenario where economic growth is strengthened due to business investment in productivity.

    5. Policymakers should be cautious. This week's Update continues the trend of good budget news for Minnesota. But policymakers should practice great caution as they make budget decisions in the closing weeks of the Legislative Session, as there is considerable uncertainty around policy changes at the federal level. And given the relatively unprecedented length of the current economic recovery, it’s likely that the next recession is not too far away. President Donald Trump has proposed and the U.S. House has considered deep cuts to the safety net and to state funding. For example, for the upcoming federal fiscal year Trump proposes about $18 billion in cuts to grants to states and local governments that support critical services, such as housing and poverty-reduction efforts. Minnesota policymakers should prepare for an uncertain future by not making large and unsustainable tax cuts or weakening the state's budget reserve.

    -Clark Biegler
  • February Economic Forecast shows surpluses, but forecasters cite federal uncertainty and need for caution

    by Clark Biegler | Feb 28, 2017

    The state’s Minnesota Management and Budget released the February Budget and Economic Forecast today. Here are our top takeaways:

    1. The state’s budget situation is better than in the last forecast. The positive balances in each of the three budget cycles described in the forecast are higher than projected in November.
    2. A $743 million positive balance is projected for FY 2016-17. This figure is for the budget cycle that ends on June 30.
    3. Positive balances are also projected for the future. Today’s report shows a $1.7 billion positive balance available for the upcoming FY 2018-19 biennium. This figure includes the balance for FY 2016-17. This forecast also projects a $2.1 billion structural positive balance for FY 2020-21.
    4. But the future balances do not take into account what it takes to maintain current levels of service.When the impact of inflation on spending is included, the surplus figures morph into a much smaller $540 million surplus in FY 2018-19 and a $959 million deficit in FY 2020-21. This means that to the extent the surplus is used for additional spending or tax cuts, this will come at the expense of keeping up with current commitments.
    5. The forecast expects higher economic growth than projected earlier. The national economy is now expected to grow at a higher 2.3 percent rate in 2017 and between 2.1 and 2.7 percent yearly growth from 2018 through 2021. 

    6. Graph Real gross domestic product annual percent change
    7. For the most part, the forecast does not reflect the impact of likely federal policy changes. The economic forecast incorporates the projected effects on the national economy of likely reductions in individual and corporate taxes and increased spending on infrastructure. However, citing “considerable uncertainty,” the forecasters did not include any economic impact of federal decisions on trade, immigration or health care. And the projected state budget figures do not anticipate the impact of potential federal cuts to state funding, although major changes are being considered.
    8. The forecasters are moderately confident in these projections, but there’s more uncertainty than usual. IHS Markit, Minnesota’s economic consulting firm, assigns a 60 percent probability to their baseline economic forecast, and a 25 percent probability to their more pessimistic scenario in which there’s a short recession next year caused by “strained trade relations” and postponed investment by businesses. The forecasters assign a 15 percent probability to a more optimistic scenario.

    The February forecast sets the stage for making budget and tax decisions for the upcoming FY 2018-19 budget cycle. Last month, Governor Mark Dayton kicked off the budget process with his budget proposal, which he will update the week of March 13. Now, legislators will use this forecast to construct their tax and budget proposals.

    The positive forecast numbers create the opportunity to make targeted investments so that more Minnesotans can participate in the state’s economic growth, such as through expanding affordable health care, child care and targeted tax credits like the Working Family Credit for Minnesotans who are working hard but struggling to pay the bills.

    But policymakers should also be cautious, because the landscape is likely to change significantly as federal policymakers are expected to enact large-scale changes over the next year. As required by law, the February forecast’s budgetary projections are based on current state and federal laws – they don’t anticipate likely federal changes.

    Federal funding is a significant part of the state’s budget, and every area of the federal budget that touches the state is under consideration for sweeping changes or funding cuts. For example, President Donald Trump plans to cut non-defense discretionary spending – about a third of which goes to states and local governments to fund key priorities like education, affordable housing, and training and employment services – in order to increase defense spending by $54 billion in 2018.

    One prominent theme to watch for is federal action to cut funding in areas of shared federal-state responsibility and shift more responsibility to the states, such as through substantial cuts to Medical Assistance that would grow over time as a result of turning Medicaid into a block grant or otherwise capping funding at inadequate levels.

    This would come on top of the harm done through changes to the Affordable Care Act (ACA). While the details are still murky, analysis of past proposals to repeal the ACA predicts that the number of Minnesotans without health insurance would more than double, and Minnesota could lose more than $16 billion in federal funding over 10 years. Just cutting the enhanced federal matching rates for the ACA’s Medicaid expansion population, means the state would need to commit an additional $815 million in 2019 alone to continue this health coverage.

    In addition, major restructuring of other federal safety net programs could increase pressure on the state to respond to the needs of Minnesota residents. At the same time, federal tax changes could erode the state’s ability to raise revenues.

    With these large and as-yet undefined federal changes on the horizon, Minnesota policymakers should make their tax and budget decisions this year with an eye to maximizing the state’s ability to respond. They should particularly avoid making large tax cuts and especially tax cuts that grow over time, which would greatly compromise the state’s ability to provide health care and essential public services after significant reductions in federal funding. The state should also maintain a robust budget reserve to be sure we’re equipped to respond to future economic downturns, given that the kinds of support that the federal government has provided in past downturns may be less likely.

    -Clark Biegler

  • January Economic Update shows lower revenues, higher economic projections

    by Clark Biegler | Jan 17, 2017

    Last week’s January Revenue and Economic Update gave us some mixed news about the state’s economic and budget landscape. The quarterly report from Minnesota Management and Budget (MMB) showed that while state revenues for the end of 2016 came in below projections, national economic growth is now expected to be stronger for the next few years.

    1. End of year 2016 revenues are below projections. November and December 2016 revenues came in $29 million below projections; that’s 0.8 percent less than projected in the November 2016 Economic Forecast. This is due primarily to lower than expected income tax receipts.

    2.  Higher national economic growth projected for 2016 and onward. U.S. economic growth for 2016 was higher than expected, due to growth in consumer and business spending. The new economic growth projections through 2019 consistently surpass the projections from the November forecast. However, the update notes that considerable policy uncertainty remains a risk to the economy and the accuracy of these projections.

    Graph US real GDP annual percent change

    3. The national economy is improving. The latest jobs numbers show that the U.S. labor market is getting close to full employment and recent wage gains are strong. Nationally, unemployment is expected to drop in 2018 and 2019.

    4. Despite policy uncertainty, forecasters remain confident in projected economic growth. The forecasters assign a 65 percent chance to their baseline forecast. They also give a 20 percent chance for a more pessimistic scenario where the U.S. sees a recession in early 2018, in which various trade relations are compromised and global economies worsen. They assign a 15 percent probability to a more optimistic scenario where productivity growth improves due to business investment encouraged by policy changes and new technologies.

    5. We’ll receive updated forecast numbers next monthThe November forecast projected surpluses of $678 million for the remainder of the FY 2016-17 budget cycle and $1.4 billion for FY 2018-19. This week’s update suggests that we are likely to see surpluses again in the February forecast. Some data in the update point to the potential for a larger surplus, and some point to a smaller one. We’ll have to wait to see next month which trends have a larger influence on the overall numbers, as well as how expenditures come into play.

    -Clark Biegler

  • Five takeaways from the November Economic Forecast

    by Clark Biegler | Dec 02, 2016

    The Minnesota Budget Project staff is currently at a conference in Washington, D.C., but given our wonky personalities we just had to take a quick look at today’s state Budget and Economic Forecast. Here are our top five takeaways:

    1. The forecast projects a $678 million positive balance for FY 2016-17. This figure is for the remainder of the current budget cycle, which ends on June 30. And it is after one-third of the positive balance is transferred to strengthen the state’s budget reserve.
    2. The November forecast also projects positive balances in the future. Today’s report shows a $1.4 billion positive balance available for the upcoming FY 2018-19 biennium. This figure assumes that the balance for the current biennium will remain for use in FY 2018-19. This forecast also gives us our first glance at the FY 2020-21 biennium, in which the state has a projected $1.5 billion positive balance.
    3. But the future balances do not take into account what it takes to maintain current levels of service.When the impact of inflation on spending is included, the surplus morphs into a much smaller $73 million in FY 2018-19 and into a $1.7 billion deficit in FY 2020-21. This means that to the extent the surplus is used for additional spending or tax cuts, this will come at the expense of keeping up with current commitments.
    4. The forecast expects weaker economic growth than projected earlier this year. The national economy is still expected to grow over the next several years, but now at a slower 1.5 percent in 2016 and hovering just above 2 percent yearly growth from 2017 through 2021.
      Graph Real gross domestic product annual percent change

    5. The forecasters are moderately confident in these projections, but there’s more uncertainty than usual. IHS Markit, Minnesota’s economic consulting firm, assigns a 65 percent probability to their baseline economic forecast, and a 20 percent probability to their more pessimistic scenario where political uncertainty both in the U.S. and abroad weakens the economy and leads to a short recession starting late next year. The forecasters assign a 15 percent probability to a more optimistic scenario where incomes, housing and consumer spending are boosted by higher productivity, which increases national economic growth next year.

    In the upcoming 2017 Legislative Session, policymakers will put together a budget for the upcoming biennium. The November Economic Forecast gives Governor Mark Dayton the baseline information he needs to put together his proposed budget for the FY 2018-19 biennium that he will release in January.

    As they make tax and budget decisions this session, policymakers should focus on state investments that expand economic security and enable our families, children and seniors to thrive. This includes affordable health care and child care, and targeted tax credits so that Minnesota workers can better support themselves and their families.

    Now is not the time to turn our backs on the progress we’ve made for a more sustainable tax system that allows us to invest in our communities. Large and poorly targeted tax cuts don’t spur economic growth – that hasn’t worked out for states like Kansas.

    We’ve long called on policymakers to make responsible tax decisions. Caution is more important than ever, given today’s modest long-term revenue numbers. Making large tax cuts now would make it harder to effectively respond to what’s ahead, including an uncertain economy and potential large-scale federal changes to tax policy and funding for states. Our own state history has shown that when taxes are cut too much in surplus years, it makes it more difficult for the state to respond to the needs of our residents in the next economic downturn. Instead, we should invest in a more durable prosperity that reaches all Minnesotans.

    -Clark Biegler

Proposals & Outcomes

  • Final transportation budget bill falls short of meeting the needs of Minnesotans

    by Clark Goldenrod | Aug 12, 2019
    Minnesotans count on their roadways to get to work, school, or community events, and no matter how they get there – whether by bus, car, or bike – having roads in good condition make that trip quicker and safer.

    Despite several proposals put forward this legislative session to increase the amount of resources dedicated to building and maintaining Minnesota's roads, bridges, and transit infrastructure, the FY 2020-21 budget only raises minimal additional revenues. The state's transportation laws also continue to exclude some Minnesotans from obtaining driver's licenses.

    In 2018, the Minnesota Statewide Highway Investment Plan found that Minnesota needs an additional $6 billion over the next 10 years for the state’s roads. One reason for the growing transportation funding shortfall is the failure of the gas tax - which has lost about one-third of its buying power since 2000 – to keep up with the state’s needs. In response, both Governor Tim Walz and the House proposed a series of funding mechanisms. The centerpiece was a 20-cent increase to the gas tax that would phase in over the next few years and then adjust for inflation. In total, their proposals would have increased transportation funding by roughly $1.5 billion in FY 2020-21 and $2.5 billion in FY 2022-23.

    The House and Governor's plans also included a Twin Cities metro area sales tax to improve funding for MetroTransit. The Governor proposed a 1/8 cent sales tax, while the House proposed a 1/2 cent tax.

    Meanwhile, the Senate proposed to use existing transportation funding rather than raise additional revenues for Minnesotans using the state's roads and transit services.

    Ultimately, the Senate prevailed and no gas or transit sales tax was passed. Instead, policymakers agreed to much smaller changes that result in about $50 million in additional transportation revenues for each of the FY 2020-21 and FY 2022-23 budget cycles.

    As a result, the FY 2020-21 transportation budget had little room for making the investments Minnesotans need to improve travel across town or across the state.

    Thanks to the tireless work of a broad range of advocates in the Freedom to Drive coalition, an important provision passed the House this session that would have allowed all Minnesotans to apply for driver’s licenses regardless of their immigration status. This provision acknowledges the immigrants who call Minnesota their home and are working, learning, and living in our communities.

    For a large number of Minnesotans, the daily activities we do to support our families – like getting to work safely, dropping children off at school, or buying groceries – require driving. But for about 95,000 Minnesotans, doing these basic activities without a driver’s license could result in potentially life-altering consequences, including being separated from their families or losing their livelihoods.

    The House provision was an important step toward giving all Minnesotans – regardless of who they are or where they were born – a fair shot in today’s economy.  However, the final transportation budget failed to include this proposal, so it's one that Minnesota policymakers should enact in the near future.
  • Final education budget makes important investments, but leaves more to do to support all Minnesota students

    by Clark Goldenrod | Jul 03, 2019

    The final E-12 education and higher education budgets for FY 2020-21 make important strides toward ensuring that more students across the state can get the education they need to succeed in today's economy. But unfortunately, the final deal failed to incorporate proposals aimed at dismantling barriers faced particularly by Minnesota's black, brown, and indigenous students.

    E-12 education

    In the FY 2020-21 budget, policymakers allocated $556 million in net additional funding to E-12 education. The largest piece is a 2.0 percent annual increase in funding for school districts through the basic student formula. That's an increase of $126 per student in the first year and another $129 the second year. While that's important, that's not enough to even keep up with inflation. In their original budget proposals, both Governor Tim Walz and the House included a larger increase of 3.0 percent in the first year.

    Policymakers also agreed to maintain the number of slots available for voluntary pre-kindergarten. Without the increase of $41 million included in the budget, the number of pre-schoolers who can participate in FY 2020 and beyond would have been cut by more than half.

    Unfortunately, while Walz, the House, and the Senate all identified school safety strategies in their budget proposals, the final E-12 education budget only allocates contingent funding. If the state's general fund closing balance for FY 2019 exceeds projections by at least $63 million, then up to $30 million of that will go toward safe schools supplemental aid. We are disappointed that policymakers took the unusual approach of contingent funding, rather than finding a sustainable way to fund something they agreed was a priority.

    The final budget also includes some targeted strategies to promote racial and geographic equity in educational opportunities, like additional funding for tribal schools and levy equalization to better fund schools in communities with low tax bases. The final education bill also includes $1.5 million in FY 2020-21 for grants to support teachers of color, but this is much less than the $4 million that the governor proposed and the $3 million proposed by the House. A third of public school students are people of color or indigenous, yet in over 80 percent of Minnesota schools, less than 10 percent of the teachers are people of color or indigenous.

    Higher education 

    In higher education, policymakers allocated $150 million in additional funding for FY 2020-21, including several measures to try to hold down the cost of college. Much of this is done through the State Grant Program, which provides financial aid for students. The bill:

    • Increases the annual living allowance for students to 106 percent of the federal poverty line, which will increase grants for full-time students by as much as $465; and
    • Reduces the required family contribution in order to make college more affordable for lower-income families.

    Unfortunately, policymakers missed an opportunity to adjust the State Grant amount for students who aren’t eligible for federal aid. Minnesota Dreamers – young people who came to the country as children and do not have legal status – are ineligible to receive federal Pell Grants. However, the State Grant formula currently calculates financial aid assuming that students receive this federal grant, meaning that Dreamers receive much less state financial aid than their peers. This policy change, found in the governor's and House's proposals, would have increased the grant award for these students, making college education more in reach for all of Minnesota’s young people.

    The final budget also includes funding increases that go directly to public colleges and universities to improve higher education for students. Over the FY 2020-21 biennium, the University of Minnesota and Minnesota State will receive $44 million and $65 million respectively. In return, the University of Minnesota and Minnesota State are expected to minimize tuition increases for the next two school years.

    Policymakers made important investments in education this year, but there's still more to do to ensure a quality education is available to everyone, including Minnesotans of color and immigrant students.

  • Raiding the state's budget reserve today could hurt everyday Minnesotans tomorrow

    by Clark Goldenrod | Jul 02, 2019

    As part of the final budget agreement, Minnesota's policymakers decided to take money out of the state's rainy day fund. This was an irresponsible budgeting choice that could hurt struggling Minnesotans during the next recession.

    After years of sound fiscal policy, the state's budget reserve is at nearly $2.1 billion, and is just shy of the 5 percent of general fund revenues that Minnesota Management and Budget currently recommends. A robust budget reserve is a critical part of adequately preparing for the next economic downturn. In the same way a family saves to withstand an unexpected serious illness or job loss, Minnesota builds this reserve so that when a recession hits and state revenues plummet, the state can avoid drastic cuts in critical services and continue to serve Minnesotans’ needs. However, the budget agreement would withdraw $491 million in FY 2022-23, weakening the reserve.

    Here are a few reasons why this was a bad move:
    Graph Past deficits have dwarfed size of current reserve

    • Decisions around using the budget reserve should take into consideration the full economic cycle. The United States has had 10 years of economic growth since the last recession. This is uncommonly long, and along with recent projections of slowing economic growth, it’s likely that the next recession isn’t too far away.
    • When the next recession hits, the needs of Minnesotans will grow - at the same time that the state's resources will shrink. The state's current reserve is not yet to the recommended level to address a common-sized economic downturn and is well short of the types of deficits Minnesota has seen in the past. Reducing the budget reserve by almost one-quarter will leave the state less equipped to respond to a recession, potentially meaning services like job training, food assistance, or health care might not be there with Minnesotans and their families need them most.
    • Taking money from the budget reserve is a temporary solution that policymakers used to fund a structural gap. This year's February economic forecast showed that Minnesota had a surplus for the upcoming FY 2020-21 biennium, but a deficit in FY 2022-23. Policymakers used the budget reserve to fill the gap between the amount of projected revenues and the cost of services. Instead, they should have responsibly raised the revenues needed to sustainably fund services that Minnesotans depend on.

    It’s imperative to build a strong budget reserve when the state’s economic outlook is good, and Minnesota has made laudable progress. But that budget reserve will only work if we keep it strong and only use it when it's needed. Policymakers made a mistake this session in drawing down the budget reserve that could likely result in harmful consequences for everyday Minnesotans in the future.

  • Critical funding for health care preserved but small gains in support for families

    by Betsy Hammer | Jun 19, 2019

    The 649-page Health and Human Services budget bill contains multitudes. Overall, the final agreement for the FY 2020-21 budget reached by Governor Tim Walz and the Minnesota Legislature takes essential steps to protect affordable health care and makes some progress toward a broader prosperity that all Minnesotans can share. However, it stops short of making major investments to improve the lives of Minnesotans, and it includes some questionable fiscal mechanisms that undermine sustainable funding for services Minnesotans count on to thrive.

    Affordable health care

    Importantly, the final budget includes a permanent extension of the health care provider tax, albeit at a lower rate. Revenue raised by the provider tax funds affordable health care for over one million Minnesotans through Medicaid and MinnesotaCare, as well as other investments in healthy communities. Had policymakers not taken action, the provider tax would have sunset at the end of 2019, putting affordable health care at risk. While this important revenue source will continue, policymakers lowered the rate from its current 2 percent to 1.8 percent. The lower rate will mean fewer resources available in the long term to make progress on ensuring affordable health care reaches all Minnesotans.

    The HHS budget also extends the Minnesota Premium Security Plan, commonly known as reinsurance, for two more years. Reinsurance is aimed at reducing health care insurance premiums for consumers who buy insurance on the individual market. Additionally, the budget deal lowers by $30 million the amount that the state will spend on health care coverage through managed care.

    Affordable child care

    Though the governor and the Minnesota House proposed increased state investments in affordable child care, the Senate’s position would have decimated affordable child care. The final agreement essentially includes a status quo budget for affordable child care, with some small but important adjustments to better serve families experiencing homelessness and those who move between counties. These changes will align the state with federal requirements and allow Minnesota to access additional federal funding. Proposals to reduce or eliminate the number of families on the waiting list for affordable child care and to bring provider reimbursement rates up closer to market rate are not included. This is a lost opportunity for Minnesota kids, parents, and employers, and is a priority that policymakers will need to address in the future.

    Families and kids

    The HHS budget includes an additional $100 per month for families participating in MFIP, Minnesota’s welfare-to-work program. This year’s investment is the first cash grant increase in over 30 years, and represents a sorely overdue improvement for Minnesota families struggling to make ends meet.

    Additionally, the HHS budget makes other significant investments for kids and families, including a child welfare training academy, tribal child welfare expansion, affordable health care for kids in foster care, and safe harbor for sexually exploited youth.

    Vulnerable adults

    The governor signed a package of reforms to protect seniors and vulnerable adults that traveled separately from the HHS budget bill as House File 90 (Schultz) and Senate File 8 (Housley). This bill “will create a licensure framework for assisted living facilities along with other safeguards to protect older and vulnerable adults.”Minnesota had been the only state in the country without these important regulations and protections to ensure the safety of elderly Minnesotans and people with severe disabilities. The final HHS budget also includes funding for adult day care oversight improvements.

    Behavioral and mental health

    The final budget bill includes investments to make behavioral and mental health services available to more Minnesotans in more parts of the state. These include funding for certified community behavioral health clinics, school-linked mental health grants, shelter-linked youth mental health grants, mobile crisis services, and comprehensive suicide prevention. The HHS budget also implements a new method to deliver substance abuse disorder services more effectively, while also saving $16 million in FY 2020-21.

    Minnesotans living with disabilities

    The final HHS bill includes language to increase the eligibility standards for people with disabilities, so that more Minnesotans will be able to receive these vital services. This results in nearly $23 million in additional funding for affordable health care for Minnesotans in the FY 2022-23 biennium and beyond. It also includes funding to streamline home and community based services, and investments to help ensure fair pay for workers who provide direct support for people living with disabilities.

    Hopeful and risky budgeting practices

    The HHS budget bill creates a Blue Ribbon Commission on Health and Human Services tasked with finding $100 million in savings. Details of how the Commission will do its work and where it will find such massive savings are not spelled out in the bill; we will be closely monitoring any proposals that reduce access to affordable health care and other services that enable Minnesotans to live with dignity and thrive.

    The final budget agreement counts $6 million in savings as a result of “program integrity” measures, meaning that state agencies will increase efforts to find errors and fraud. While it is paramount that public dollars be spent appropriately, counting on savings that may not materialize could present a risk to the balanced budget. We should be wary of efforts that create additional bureaucratic hurdles that simply result in eligible Minnesotans losing access to important services.

    The HHS budget bill shifts $270 million in Medical Assistance spending from the state’s general fund to the Health Care Access Fund, or HCAF. This is simply an accounting shift that aligns the spending with a source of the funding while keeping funding levels consistent so that Minnesotans who rely on Medical Assistance are not harmed.

    Overall, the final HHS budget agreement is a mixed bag for Minnesotans. Some important strides were made on affordable health care, support for families working towards economic security, protecting elderly and disabled adults, and increased access to behavioral and mental health services for Minnesotans around the state. However, important investments were left on the table. The state failed to make progress on addressing Minnesota families’ need for affordable child care, access to prescription drugs, and expanding paid leave. And, the budget includes assumptions about millions of dollars in savings and gimmicks. That introduces uncomfortable risks for Minnesotans who count on essential services being available and solvent when they need them.

  • Global budget deal reached Sunday; more work needed to pass final budget

    by Clark Goldenrod | May 21, 2019

    On Sunday evening after weeks of negotiations, legislative leaders and Governor Tim Walz announced a global budget deal. This deal is a compromise in many ways between their original proposals. While there are many details of the final budget to be worked out, we hope that the final budget will build shared prosperity for Minnesotans, regardless of who they are or where they live. Here’s what has been reported so far.

    Global Budget Agreement
    (General Fund net changes)
    FY 2020-21 FY 2022-23
    E-12 Education $540 million $716 million
    Higher Education $150 million $150 million
    Public Safety $125 million $150 million
    Transportation $93 million $1.4 million
    State Government $63 million $61 million
    Agriculture, Housing, Broadband $60 million $14 million
    Vulnerable Adults $31 million $24 million
    Capital Investment, Debt Service $27 million $49 million
    Environment $14 million $7.9 million
    Economic Development $10 million -$5.9 million
    Health and Human Services -$358 million -$557 million
    Other Bills $4.5 million $4.3 million
    Taxes $0 $0
    Total $760 million $615 million


    The final budget agreement allocates over half of the $1.1 billion projected surplus for FY 2020-21 to E-12 and higher education. As part of their agreement, policymakers will increase funding for school districts through the basic student formula by 2.0 percent in FY 2020 and another 2.0 percent in FY 2021.

    We were relieved to see that policymakers agreed to not threaten affordable health care for over one million Minnesotans. The health care provider tax will continue to support funding for Medicaid and MinnesotaCare, although at a slightly lower rate (1.8 percent versus the 2.0 percent currently.)

    On the other hand, Health and Human Services faces a negative $358 million general fund target. Not all of this will actually result from cuts to services that Minnesotans count on. The deal includes shifting $270 million in FY 2020-21 and $514 million in FY 2022-23 from the Health Care Access fund, and $142 million from the Premium Security Account.

    Policymakers announced that their tax proposal would have a $0 target for both biennia. Leadership indicated that the final tax bill will raise money through federal conformity and use those revenues to provide an equal amount of tax cuts. Two tax cuts specified in the budget agreement are a cut to the 2nd income tax rate and further cuts to the state property tax paid by businesses. Nearly half of all Minnesotans see no benefit from the rate reduction, especially low- and middle-income households, and the largest tax cuts go to higher-income households. As policymakers agree to the details of the tax bill, expanding the Working Family Credit and Renters’ Credit should be included so that more everyday Minnesotans are included.

    The final budget deal also does not include an increase to the gas tax to fund state transportation needs. Both the governor and House budget proposals included an increased gas tax to fund overdue improvements for Minnesota’s roads, but the final transportation budget will rely on existing revenues.

    A troubling component of the agreement takes money from the state’s budget reserve to balance the budget in the next biennium. A robust budget reserve is a critical part of adequately preparing for the next economic downturn, and after years of sound fiscal policy to build up the reserve, the state’s budget reserve is just shy of Minnesota Management and Budget’s recommendation. In the same way a family saves to withstand an unexpected serious illness or job loss, Minnesota builds this reserve so that when a recession hits, the state can avoid drastic cuts in critical services and continue to serve Minnesotans’ needs. However, the budget agreement would withdraw $491 million in FY 2022-23, weakening the reserve.

    Conference committees were expected to put together their final budget bills and leadership expressed hope they would be ready in time for a special session to be called on Thursday to pass the final budget. However, only one budget bill had passed by the time the session officially ended on Monday night, so there’s more work to do to fill out the details and pass the budget agreement into law. Stay tuned for the details as they come out.

    -Clark Goldenrod

  • Affordable child care: Good for all

    by Betsy Hammer | May 09, 2019

    At this point in the legislative session, there’s a lot of attention to the negotiations about budget numbers. Those are important, but we can’t lose sight of what the decisions at the Capitol are really about. And that’s how we, through our public investments, build a state where all Minnesotans – regardless of who they are or where they live – can get ahead and provide bright futures for their children.

    Our friends with the Kids Can’t Wait coalition have been hearing from our Minnesota neighbors about the importance of child care assistance. We’ve heard from moms for whom child care assistance made the difference in being able to stay in the workforce, go to school, and advance in their careers. We’ve heard how child care assistance made it possible for their kids to learn and grow in child care that supported their developing minds. And we’ve heard from child care providers and other business owners about why it’s so important for Minnesota parents to be able to afford the cost of child care.

    But too many Minnesota families struggle to find and pay for child care. Child care is hard to find: Minnesota has over 222,000 child care spaces, but over 300,000 kids under age 6 who might need a child care spot. Families of color and families living in certain regions of the state have an even more difficult time finding care. And child care is expensive: the average cost for enrolling a Minnesota infant in a child care center is $310 per week, or over $16,000 per year. That’s a real struggle for many families.

    More than ever, we can’t afford to have parents leaving the labor market just because they can’t find child care. Minnesota’s unemployment rate is 3.2%; that is historically low, and recently the Department of Employment and Economic Development (DEED) noted that they hear “from many sources that employers are indeed having increasing difficulty finding available workers.”

    Investing in the Child Care Assistance Program (CCAP) would support families and employers to keep our economy strong. Child care assistance covers a portion of a family’s child care bill on a sliding scale based on family income. Child care assistance covers kids up to age 12, is available in every county, and covers the hours parents are working. Parents have the freedom to choose a provider that best fits their family’s needs and preferences.

    Unfortunately, Minnesota’s investment in child care assistance hasn’t kept up with the needs. Since FY 2003, state funding for child care assistance has dropped by 37 percent (after adjusting for inflation). As a result, about 2,000 families are on waiting lists. And, the state’s reimbursements to child care providers are woefully out of date so that it can be a financial hardship for providers to serve families participating in CCAP. This limits the options for family choices.

    Governor Tim Walz and the Minnesota House have proposed investing in child care assistance, including additional funding to reduce the waiting list, updated provider reimbursement rates, and changes to meet federal requirements. These measures would make meaningful steps toward making child care assistance work better for families, kids, and child care providers, and for the state’s economy overall. In contrast, the Senate plan puts care for 30,000 kids at risk by eliminating CCAP with the promise of reinstated but reduced funding levels if the Department of Human Services redesigns the program.

    The May 20 end of session is approaching quickly. Policymakers must focus on strategies to make Minnesota a place where all can thrive; child care assistance is a time-tested approach to do so that lets working parents afford child care, children to thrive, and businesses to have a reliable workforce.

    Add your voice – contact your legislators and ask them to make funding for affordable child care for Minnesota families a priority in this year’s budget decisions. 

     
  • Driver’s licenses regardless of immigration status is good for Minnesotans, good for the economy

    by Betsy Hammer | May 06, 2019

    Last week, the Minnesota House passed expanded access to driver’s licenses regardless of immigration status as part of their omnibus transportation budget bill (House File 1555.)

    This provision would allow Minnesotans to apply for driver’s licenses regardless of their immigration status, acknowledging the immigrants who call Minnesota their home and are working, learning, and living in our communities.

    For a large number of Minnesotans, the daily activities we do to support our families – like getting to work safely, dropping children off at school, or buying groceries – require driving. But for about 95,000 Minnesotans, doing these basic activities without a driver’s license could result in potentially life-altering consequences, including being separated from their families or losing their livelihoods.

    Minnesota is increasingly relying on all members of our communities to fill critical jobs. With a driver’s license, these community members are able to reliably get to their jobs, have more flexibility for scheduling, and can fill a broader range of job openings. Having a driver’s license can open a door to increased earnings, creating a boost in consumer spending that’s good for our local economies.

    Last week’s House vote was an important step toward giving all Minnesotans – regardless of who they are or where they were born – a fair shot in today’s economy and allowing everyone to more fully and safely be a part of our economy and communities. This provision is not included in the Senate’s omnibus transportation bill, but we strongly urge policymakers to pass this provision in the final budget this year.

    -Clark Goldenrod

  • Real people, real communities: Why maintaining the provider tax is so important

    by Betsy Hammer | May 06, 2019

    It’s hard to avoid news about the health care provider tax if you follow politics in Minnesota. Our state’s provider tax raises about $680 million each year for affordable health care and healthy communities from International Falls to Itasca to Inver Grove Heights. But policymakers must take action this session because this important revenue is slated to expire at the end of this year.

    The legislative session is scheduled to end on May 20. That’s just a few short weeks away. Failure to act would have disastrous consequences for our Minnesota neighbors and communities around the state. Here’s what’s at stake:

    Affordable health care for more than one million Minnesotans

    Over one million Minnesotans – or, nearly 20 percent of us – have affordable health care funded in part by the provider tax. These include Minnesotans who access care through Medicaid and MinnesotaCare, and include seniors, people living with disabilities, and families earning lower wages. Kids make up 45 percent of all Medical Assistance enrollees.

    Revenue from the provider tax goes into the Health Care Access Fund (HCAF). In FY 2019, the HCAF provided $439 million for Medical Assistance.

    Healthy communities in every county

    Minnesotans in rural communities can face more hurdles in getting affordable health care. The provider tax funds essential services to connect rural Minnesotans to health care and contributes to the health of their communities.

    Rural Minnesota counties tend to have a greater portion of their residents who get health care through Medicaid or MinnesotaCare compared to urban areas. And, 46 percent of all Minnesotans who get their health coverage through Medicaid live in Greater Minnesota.

    The importance of the provider tax to rural communities has been highlighted by the Minnesota Hospitals Association, which has stated it “supports the elimination of the sunset, given that the provider tax is a dedicated, sustainable funding source for insurance coverage for low-income, working families.” The Minnesota Hospital Association’s Vice President of Government Relations Mary Krinkie said that “over the past two decades, hospitals have come to appreciate the many good things that have been accomplished because of having the provider tax in place.”

    The provider tax helps fund other efforts to address the health challenges of Greater Minnesota, whether that is the higher prevalence of child poverty or the lower ratio of primary care physicians to people. For example, the provider tax supports University of Minnesota initiatives focused on primary care, and the Statewide Health Improvement Partnership (SHIP) supports for community solutions for healthy lifestyles to reduce future health care costs.

    Policymakers must act to extend the provider tax

    As the end of session and the provider tax cliff loom large, policymakers must take action to extend the provider tax. The provider tax funds essential health care coverage for one in five Minnesotans and makes important investments in healthy communities across the state. Lack of reliable funding to support these activities would threaten the health of our Minnesota colleagues, neighbors, and friends.

    -Betsy Hammer

  • Provider tax: Why now is the time to repeal the sunset

    by Betsy Hammer | May 06, 2019

    Minnesota’s health care provider tax raises nearly $680 million annually for affordable health care and investments in healthy communities across the state. This essential funding source will expire at the end of this year unless policymakers take action during this legislative session. The urgency is real: without an extension of this vital funding, the state’s Health Care Access Fund will quickly run out of money – threatening the future of essential health care services in Minnesota.

    The provider tax is a major funding source for health care initiatives that reach more than one million Minnesotans. It was instituted in 1992 to expand access to affordable health care. The dollars raised go to the Health Care Access Fund (HCAF), which funds health care through Medicaid and MinnesotaCare for lower-income Minnesotans and investments in healthy communities. Though there are other revenues that feed into the HCAF, the provider tax produces about 80 percent of the HCAF’s revenue.

    As part of a deal to end the 2011 state government shutdown, policymakers added a 2019 “sunset” to the provider tax law. As Mary Krinkie, Vice President of Government Relations for the Minnesota Hospital Association, put it: “there’s always a tendency to kick the can down the road, and at that time 2019 seemed a long way away.”

    If the provider tax sunsets, revenues will disappear but needs will persist. A look at the projected balance of the HCAF, assuming the provider tax does sunset, shows that the HACF quickly runs out of money needed to fund essential health services.

    Projected HCAF Balance (numbers in 000s)
    FY 19 FY 20 FY 21 FY 22 FY 23
    Balance $670,233 $602,218 $61,213 ($416,149) ($918,959)

    Some might be tempted to kick the can down the road again, but Minnesotans’ access to affordable health care is too important to risk, especially as we grapple with challenges like shortages of providers in rural areas, persistent racial inequality in access to health care and health outcomes, and uncertain federal funding. Introducing risk and uncertainty to Minnesotans counting on Medicaid and MinnesotaCare is an unacceptable burden to place on our neighbors. Policymakers must act to extend the provider tax and ensure affordable health care will continue to be available without disruption.

    We shouldn’t wait until we get into trouble before finding a solution: we need to repeal the sunset this year, before it expires. There would be substantial administrative hurdles involved if we turned the tax “off,” even for a short period of time, and then tried to go back to it later when alternatives don’t pan out. Allowing the provider tax to continue will ensure a smooth experience for both the providers who remit the tax and the Minnesotans who rely on the services it funds.

    The future of affordable health care for one million Minnesotans is at stake. Policymakers must act now to repeal the sunset, and ensure stable and adequate funding to support affordable, equitable health care for Minnesota.

    -Betsy Hammer

  • A tale of two HHS omnibus bills: House and Senate offer dramatically different visions

    by Betsy Hammer | Apr 29, 2019

    The Minnesota House and Senate have wrapped up committee work on their omnibus budget bills. They present starkly opposed visions for Minnesota – and this is reflected in two very different health and human services (HHS) budget targets and bills.

    In the House, Representative Tina Liebling’s omnibus HHS bill includes important investments in healthy people and thriving communities, and is balanced with sustainable revenue sources. The Senate’s goals are focused on limiting spending, and their health and human budget slashes services, such as child care assistance and some health care coverage, and would result in significant harm to Minnesotans.

    Provider tax

    Minnesota’s provider tax is a proven and time-tested way to ensure Minnesotans have affordable health care. This crucial source of revenue raises about $700 million per year for affordable health care and healthy communities across Minnesota. However, the provider tax will sunset this year unless policymakers take action. The House HHS bill includes a repeal of the provider tax sunset, whereas the Senate HHS bill allows the sunset to go forward, putting the future of affordable health care for Minnesotans at risk.

    Affordable child care

    Minnesota’s Child Care Assistance Program (CCAP) puts affordable child care in reach for about 30,000 Minnesota kids. Safe and affordable child care allows parents to work while kids are in a supportive environment, and helps employers to find and keep the workers they need. The House bill includes funding to reduce the waiting list ($26 million for FY 2020-21), implement family-friendly provisions ($8.2 million for FY 2020-21), and update provider rates ($11 million for FY 2020-21). The House also includes program integrity provisions to make sure that CCAP dollars go to help families and kids.

    In contrast, the Senate bill eliminates CCAP, putting the well-being of 30,000 Minnesota kids at risk. Under this proposal, the Department of Human Services would propose a new child care assistance system by January 2020. After legislative approval, the newly designed program could operate, but the Senate only provides one-time funding – creating real questions about how families’ child care needs would be met.

    Minnesota Family Investment Program (MFIP)

    The House budget proposal includes $45 million for a $100 per month increase for families participating in Minnesota’s welfare-to-work program. The basic cash grant amount has not changed since 1986, and the long-overdue increase will allow Minnesota’s most struggling families to live with greater dignity as they work towards economic security. The Senate does not include an increase in cash assistance.

    Health care

    The House includes Governor Tim Walz’s OneCare plan, a set of proposals to ensure that more Minnesotans have access to affordable health insurance at a coverage level that works for them. In contrast, the Senate does not include any of the OneCare provisions, and it eliminates dental and vision coverage for people who have affordable health care through MinnesotaCare and Medical Assistance while also increasing the out of pocket costs for Minnesotans with coverage through Medicaid.

    The Senate also proposes limiting projected growth for some health care costs. While this reduces projected spending on the budget tracking spreadsheets, it fails to recognize the true cost of providing existing services and is unlikely to be approved by the federal government.

    Long-term care and vulnerable adults

    Both bills respond to concerns about caring for elderly and vulnerable Minnesotans. Some of the few budget increases in the Senate are for electronic monitoring in long-term care facilities. The House includes funding for the Ombudsperson for Long-Term Care as well as to support civil and criminal coordination for the protection of vulnerable adults, an assisted living report card, and increased protections for vulnerable adults.

    Workforce

    The House includes $34 million to increase pay for workers who care for people living with disabilities, and Senator Jim Abeler’s bill includes $40 million for this purpose. The House also includes $37 million for approval of the self-directed worker union contract to support personal care attendants (PCAs). The Senate does not include the increase for these workers, and actually reduces spending on PCAs by limiting the number of people and conditions that would qualify for PCA help.

    Transfers

    The House bill transfers unused dollars from health care reinsurance back to their original funds. This results in nearly $400 million reverting back to the Health Care Access Fund (HCAF) and $142 million back to the general fund. The Senate bill does not include these provisions. However, by shifting over $73 million in spending from the HCAF to the general fund and juggling other transfers, the Senate bill is able to keep the HCAF solvent for a few years after the scheduled expiration of the provider tax. Without the sustainable revenue from the provider tax, the long-term result will be a shortage of health care funding.

    Other issues of concern

    The House bill includes funding to expand community behavioral health clinics, mental health standards, children’s intensive services reform, school-linked mental health, improvements to substance abuse treatment, and a reform of behavioral health financing. Of these, the Senate includes only timely access to substance abuse treatment and the reform of behavioral health financing. Additionally, the governor, House, and Senate all include a proposal for substance abuse disorder treatment waivers to improve services.

    Liebling’s bill includes funding for a child welfare training academy, tribal child welfare initiatives, and additional protections for kids in foster care, including background studies and affordable health care. The Senate proposal does not include these provisions.

    The Senate proposal includes a 9.8 percent reduction (about $20 million per year) for the Department of Human Services and a 15 percent reduction (about $1.5 million per year) for the Minnesota Department of Health. These cuts are undefined and would be up to the departments to implement.

    Looking forward

    The House and Senate bills present dramatically different visions. With the House and governor investing in healthy people and thriving communities, the Senate’s insistence on limiting spending fails to meet the needs of many Minnesota neighbors, colleagues, and friends. An additional wonky point of concern: the Senate HHS proposal uses shifts and savings that are unlikely to materialize in order to balance their bill.

    As legislators and the governor work to create a budget for the upcoming biennium, we urge a focus on expanding access to affordable health care, child care, and other services that make Minnesota a place where all can thrive.

    -Betsy Hammer

     
  • Governor Walz’s FY 2020-21 budget proposals in E-12 education and higher ed invest more in Minnesota’s students

    by Clark Goldenrod | Apr 16, 2019

    Governor Tim Walz’s FY 2020-21 budget proposal includes provisions that support students across the state, as well as more targeted funding intended to narrow the opportunity gaps that students of color face in particular. Overall, Walz’s budget proposes $718 million in additional general fund resources for E-12 education and $165 million for higher education.

    An educated Minnesota is critical for the state’s economic success. The state plays an important role in the funding of Minnesota’s schools, and local property taxes often factor heavily into whether the schools have the resources that they need to support children’s learning. Districts with less property wealth often aren’t able to raise the additional funds needed to support their students. A long history of discriminatory housing policies in the United States has limited the ability of people of color to build wealth through homeownership. And for those who do own homes – their homes are often assessed at lower values than homes of their white peers, affecting the district’s tax base.

    Minnesota has taken some important steps to help equalize the funding that districts receive, but it is still the case that districts with a high concentration of students of color living in poverty receive less money per pupil than districts with a high concentration of white students living in poverty.

    E-12 Education

    The governor proposes $718 million in additional funding for E-12 education. He proposes increasing funding for school districts through the basic student formula by 3.0 percent in FY 2020 and another 2.0 percent in FY 2021. That’s an increase of $189 per student the first year and another $130 the second year.

    The governor stresses the importance of early learning programs to address gaps in educational achievement and opportunity so that all children can thrive in school. Walz also recommends $47 million in FY 2020-21 to restore the number of slots available for voluntary pre-kindergarten. Without action, a cap currently in place would cut the number of pre-schoolers who can participate in FY 2020 and beyond by more than half. Walz’s funding would lift this cap and make it possible for 7,160 students, or about one-eighth of eligible 4-year-olds, to participate in pre-kindergarten and school readiness programs.

    The governor also proposes to increase funding for special education by $91 million. Walz’s proposal would increase student subsidies through the special education formula to create more stable funding for schools to provide services and help reduce the portion of unfunded costs that schools have to address.

    Walz proposes $18 million in FY 2020-21 for school districts and charter schools to be used for school safety, including security improvements and counselors. For this funding increase, the governor cites the increase in school shootings and violence in the U.S., and the need to protect students in Minnesota.

    The E-12 budget proposal also includes a number of targeted initiatives to make sure that all students, including students of color and students in rural areas, have a high quality education:

    • Levy equalization to better fund schools serving communities with low tax bases to meet the needs of their students;
    • Full service community schools that provide wraparound services that serve primarily low-income and rural communities;
    • A multi-pronged approach to support and recruit teachers of color and American Indian teachers in the classroom; and
    • Funding for tribal contract schools. Currently state per pupil aid for tribal schools is set to decrease by about 50 percent; the governor’s budget would prevent this decline and instead maintain the current formula funding.

    Higher Education

    In higher education, Walz proposes to make college more affordable through an additional $43 million in FY 2020-21 for financial aid through the State Grant Program. His financial aid proposal contains several components, including:

    • Increasing the annual living allowance for students, equal to about $300 per year for full-time students.
    • Reducing the family contribution in order to make college more affordable for lower-income families. This would effectively increase state grants by about $100 per student.
    • Better integrating child care so that students who have children can receive the supports they need while they complete their education.
    • Adjusting the State Grant amount for students who aren’t eligible for federal aid. Minnesota Dreamers – young people who came to the country as children and do not have legal status – are ineligible to receive federal Pell Grants. However, the State Grant formula currently calculates financial aid assuming that students receive this federal grant, meaning that Dreamers receive much less aid than they need to afford college. The proposal would increase the grant award for these students, making college education more in reach for all of Minnesota’s young people.

    The governor also proposes investments that go directly to colleges and universities to improve higher education for students. Over the FY 2020-21 biennium, the University of Minnesota and Minnesota State would receive $51 million and $65 million respectively. These funding increases are expected to help these institutions keep up with the costs involved with educating their students. In return, the University of Minnesota and Minnesota State are expected to maintain the quality of education they provide while minimizing any increases in tuition.

    Stay tuned for more analysis as the final FY 2020-21 budget comes together.

    -Clark Goldenrod

     
  • Governor Walz’s FY 2020-21 transportation proposal increases gas tax and other revenues to pay for Minnesota’s roads and transit

    by Clark Goldenrod | Apr 09, 2019

    Governor Tim Walz’s FY 2020-21 budget proposal includes a substantial transportation component. Minnesotans count on their roadways to get to work, school, or community events, and no matter how they get there – whether by bus, car, or bike – having roads in good condition make that trip quicker and safer. His recently released supplemental budget makes some small changes to his original proposal but largely follows the same policies and principles.

    Through the governor’s budget proposal, he expects to:

    • Modernize the state’s roads and bridge system;
    • Make investments in programs like MnPASS; and
    • Improve travel on “key corridors” throughout the state and within our state’s cities and towns.

    The Department will also use the funding to address snow and ice maintenance on the roads, repair potholes, inspect and maintain bridges, and build a safer transportation system. Transit investments include funding for Metro Mobility, which serves Minnesotans living with disabilities. The funding would also help improve bus service and build out rapid transit lines.

    The Minnesota Statewide Highway Investment Plan found that Minnesota needs an additional $6 billion over the next 10 years for the state’s roads. In response, Walz proposes a few funding mechanisms to meet this need. The centerpiece is increasing the gas tax, which has lost about one-third of its buying power since 2000. Walz proposes raising the tax by 20 cents in steps over two years, and then indexing it to inflation starting FY 2023 so that it can keep up with the state’s transportation needs.

    In addition, the governor proposes:

    • Increasing the vehicle registration tax;
    • Increasing the motor vehicle sales tax rate from 6.5 to 6.875 percent;
    • Authorizing new trunk highway bonds totaling $2 billion over eight years; and
    • Enacting a 1/8 cent sales tax in the seven-county metro area for transit.

    In addition to increasing investment in transportation and transit, the increases in dedicated transportation funding allow the governor to end the recent practice of diverting certain sales tax revenues from the general fund to transportation. This would put about $460 million back in the general fund in FY 2020-21, where it funds investments including in education and community vitality.

    -Clark Goldenrod

  • Walz tax plan expands Working Family Credit, funds investments in schools and communities

    by Nan Madden | Apr 08, 2019

    Narrowly defined, the primary responsibility for policymakers this legislative session is to pass the state’s next two-year budget. But more broadly, their focus should be to ensure that our state lives up to its promises, and becomes one where everyone can thrive, regardless of their zip code. To do that, policymakers need to take on some of the things impeding our path to that future. For one, the state’s budget surpluses aren’t expected to last beyond the next couple of years, and funding sources specifically for transportation and health care need to be shored up. And lack of investment in some of our communities means too many of our neighbors have a particularly steep hill to climb to reach economic security.

    Governor Tim Walz’s budget takes aim at some of those barriers through investments in schools, health care, and communities. His tax plan raises revenues needed to fund our current commitments as well as the new investments. In this blog, we take a closer look at some of the details including how those revenues would be raised.

    Put everyday people first and invest in communities

    Walz’s proposal would expand the Working Family Tax Credit, a tax credit for workers and working families that we’ve long championed because of how it boosts incomes, gets children off to a stronger start, and contributes to a fairer tax system. Walz would expand the credit by just over $50 million a year through two policy changes:

    • Providing an expanded tax credit for families with three or more children, making a long overdue update to match the structure of the federal tax credit that the Working Family Credit is based on; and
    • Adding an additional $100 to the Working Family Credit for single or head-of-household filers and $200 for married couples. This increase is meant to offset the impact on these Minnesotans from the governor’s proposed gas tax increase.

    The tax plan would also treat homeowners equitably by allowing immigrants who own their homes to gain homestead status. Currently, some Minnesota homeowners pay higher property taxes simply because they use an Individual Taxpayer Identification Number, or ITIN, when they file their taxes rather than a Social Security Number.

    In addition, the Walz tax plan would increase funding for state aids to cities and counties by about $60 million per year; this helps fund public services in communities across the state and reduces reliance on local property taxes.

    Tax conformity

    A major component of tax proposals this year is “tax conformity”, or updating the state’s tax code in response to federal tax changes, primarily the 2017 federal tax bill. Minnesota’s income and corporate tax systems use many federal tax law definitions as their starting point, so when there are federal changes, Minnesota policymakers have to decide whether or not to mirror those changes in our tax code.

    Since the federal tax law passed, we’ve argued that Minnesota should not repeat that bill’s flaws. The federal bill provided large permanent tax cuts for corporations, including a 40 percent cut in the federal corporate tax rate. In contrast, tax cuts for individuals and families are temporary, and the largest tax cuts go to high-income households. And overall, the federal bill harms the nation’s ability to fund essential services.

    Minnesota instead should put everyday people first in its approach to conformity. For individuals and families, Walz’s income tax conformity proposal would maintain many of the deductions, exemptions, and other state-level tax benefits that would be lost if the state simply conformed to the federal bill.

    Given the sizeable federal tax cuts for corporations and businesses, it makes sense for the state to recapture a portion of that tax benefit to fund needed investments in our schools, communities, and other building blocks of broader prosperity in Minnesota. Walz’s tax conformity proposal would raise $899 million in the FY 2020-21 two-year budget cycle and $819 million in FY 2022-23 from corporations and businesses. While the federal tax bill deeply cut the corporate tax rate, it also “broadened the base” or expanded the share of business profits that are taxable. The governor’s tax plan raises revenues by adopting many of these base broadeners, as well as some changes that reduce taxes (such as federal rules for accounting for purchases of new equipment).

    Reverse past tax cuts that have proven to be unsustainable and unaffordable

    Another way that the governor’s tax plan would stabilize state revenues is by reversing or freezing three tax cuts passed in 2017 that are growing in cost in each year. His proposal would reinstate inflationary adjustments on tobacco taxes and the statewide property tax paid by businesses, and freeze the exemption amount in the estate tax at current levels (rather than allowing it to rise further). These provisions would raise $76 million in FY 2020-21 and $231 million in FY 2022-23.

    Shore up dedicated funding sources for transportation and health care

    In addition to the tax provisions described above, which largely impact the state’s general fund and are contained in House File 2125, Walz takes other measures to maintain and strengthen funding sources that go to specific areas of the budget.

    • He would maintain the health care provider tax, rather than allow it to expire. This would prevent the loss of about $700 million a year in dedicated health care spending. His health care proposal would also create a state tax credit to put a cap on how much Minnesotans can pay for premiums if they buy insurance in the individual market.
    • Walz’s transportation proposal would raise the gas tax in multiple steps, ultimately increasing it by 20 cents a gallon, as well as increase other funding sources dedicated to transportation. Not only would this help the gas tax regain its buying power and fund needed transportation improvements, but it also would allow the governor to end the recent practice of using general fund dollars to fund transportation investments, leaving less available for schools, human services, and the many other state services that vie for funding in the general fund.

    The governor’s tax bill is a strong foundation to start from as the state’s tax debate moves into the next phase. We’ve encouraged policymakers to add additional progressive tax components as they develop their tax plans, and the House’s proposal to strengthen the Renters’ Credit for lower-income Minnesotans is one good example of how to do so.

    -Nan Madden

     
  • Senate budget targets call for few investments, mostly flat funding

    by Clark Goldenrod | Apr 04, 2019
    The Minnesota Senate's budget targets, released last week, give a high level picture of their budget outline. The Senate's "Advancing Minnesota" budget makes new investments primarily in education and health and human services, leaving most of the budget areas with the same amount of funding as projected in the February Forecast.

    The targets are an important milestone in the budgeting process. They set the size of the Senate's omnibus budget, tax, and bonding bills. Each legislative body sets their own targets, and the House released their targets last week. Proposed targets describe the net changes to state general fund spending in each area, and could also reflect revenue increases or transfers between funds.

    Senate General Fund Targets (net changes) FY 2020-21
    E-12 Education $206 million
    Health and Human Services $147 million
    Higher Education $100 million
    Agriculture, Rural Development, Housing $30 million
    Judiciary and Public Safety $25 million
    Energy and Utilities $0
    Commerce and Consumer Protections $0
    Veterans and Military Affairs $0
    Transportation $0
    Jobs and Economic Growth $0
    Capital Investment, Debt Service $0
    State Government and Elections -$16 million
    Environment and Natural Resources -$57 million
    Taxes $0
    Other Bills -$18 million
    Total $417 million

    The largest proposed target is in E-12 education. Senate leadership has indicated that some of this target will go to school safety. In addition, the Senate lists mental health, elder care, and child care as priorities. They also indicated that their budget will not maintain the provider tax, a major funding source for health care for about 1 in 5 Minnesotans.

    Many of the Senate's targets are $0, meaning that they include no additional spending over the FY 2020-21 baseline. Unlike the governor and House - who commit to raising additional dedicated funding for transportation and reducing general fund spending in that area - the Senate leaders say their transportation plan will solely rely on existing funding.

    The targets leave some important questions unanswered. The total changes add up to $417 million, substantially less than the $1.1 billion surplus projected for FY 2020-21. It's unclear whether the remainder would be left unspent "on the bottom line," or used in some other way. Another key question is what the Senate has planned regarding revenues. The Senate's budget plan includes a target of $0 for their tax bill, which they describe as a tax conformity bill. However, their targets also indicate that their FY 2020-21 budget will bring in $557 million less in general fund revenues. It's unclear how this would be achieved.

    Stay tuned for more analysis of how the pieces of the budget bills come together.

    -Clark Goldenrod
  • Provider tax: The proven way to fund affordable health care for Minnesotans

    by Betsy Hammer | Apr 03, 2019

    Minnesota’s health care provider tax generates about $700 million each year to support affordable health care and investments in healthy people and communities. Under current law, the provider tax is set to expire in December of this year. The Minnesota Budget Project strongly supports maintaining the provider tax to make sure that our Minnesota neighbors and colleagues can continue to have affordable health care when they need it most.

    Minnesota’s provider tax is a proven and time-tested way to ensure Minnesotans have affordable health care. In contrast, the state of Michigan experimented with a few types of health-related taxes, and discovered various problems with these alternative sources – including insufficient revenues and problems with federal regulations.

    Michigan’s experience with a claims tax illustrates the risks and challenges with that type of funding mechanism, primarily related to failing to raise adequate revenues. In 2011, Michigan created the Health Insurance Claims Act (HICA): a 1 percent tax on all health insurance claims paid in the state. The state projected the HICA would raise between $375 million and $400 million to support the state’s Medicaid services; however, actual revenues were much lower and left a large gap in state funding for Medicaid, putting health care for those most in need at risk. The state continued to tinker with the tax rates and explored other revenue options, but problems persisted: Michigan’s HICA never managed to raise the projected amount needed. Minnesota’s provider tax has decades of history, which supports solid, reliable projections for accurate budgeting and planning to make sure Minnesota’s investments in healthy people and communities stay on track.

    Michigan also experimented with a tax on Medicaid managed care organizations, which was flagged as problematic by the federal Centers for Medicare & Medicaid Services (CMS). Alternative types of revenue raisers can spell potential litigation and challenges with federal guidelines. Federal law allows provider taxes to fund Medicaid, and 49 states have some type of provider tax in place. However, there are restrictions: the taxes “must be broad-based, uniformly imposed, and cannot hold providers harmless from the burden of the tax.” ERISA, the Employee Retirement Income Security Act of 1974, also adds complexity in the case law regarding what types of taxes can and cannot be imposed. Minnesota’s provider tax has been in place for decades and has held up to legal scrutiny – other types of revenue raisers have not been tested in this way.

    Minnesota has an infrastructure in place when it comes to provider tax implementation and collection. During the 27 years that the provider tax has existed, the Minnesota Department of Revenue and health care providers have developed systems and procedures to remit and collect the taxes. Starting from scratch with a different type of tax would be a bureaucratic challenge. While sometimes it makes sense to start fresh in order to implement a new, better, or more effective idea, in this case, shifting away from the provider tax to an untested alternative would result in a great deal of administrative work and costs for a change that is simply not needed.

    Minnesota policymakers must act this session to extend the health care provider tax, or we will experience a serious blow to our ability to put affordable health care in reach for all communities. And while the provider tax is critical for Minnesotans’ health, if it is eliminated the consequences could be much broader. A budget hole of $700 million if the state fails to extend the health care provider tax – or if an alternative revenue source fails to live up to projections – would create stress on other important Minnesota priorities like K-12 education, roads and transit, and public safety. Protecting the tried and true health care provider tax will help ensure investment in Minnesotans’ health and in our state’s thriving communities. Minnesota is a leader in health care, and the well-being of our families and neighbors is too important to risk.

    -Betsy Hammer, with thanks to our colleagues at the Michigan League for Public Policy

  • Governor Walz's revised budget raises additional revenues, adjusts spending to build shared prosperity

    by Clark Goldenrod and Nan Madden | Mar 28, 2019

    Last Friday, Governor Tim Walz released an updated budget proposal that responds to the less rosy state economic forecast released in late February. The revised budget retains the Walz/Flanagan administration's "One Minnesota" priorities, and augments the surplus by maintaining and raising revenues to invest in health care, education, broader economic opportunity, and transportation.

    The original budget anticipated that the surplus would shrink by the time the February Forecast came around, and left $789 million unspent, or "on the bottom line", which created a cushion that absorbed much of the reduction in the surplus. In addition, Walz's revised budget adapts to the new forecast figures by:

    • Reducing its new general fund investments by $131 million through a combination of scaling back some original proposals and using other funding sources, such as federal or dedicated funds, to fund certain initiatives;
    • Raising $65 million more in general fund revenues than in the original tax proposal; and
    • Transferring $142 million of unspent health care reinsurance funding back into the general fund.

    The revised budget also includes $37 million in new investments that were not in the original budget proposal, the largest of which go to higher education.

    Here's a look at some of the more specific revisions to the Governor's budget proposal.

    New investments

    While many budget areas saw only slight adjustments, one area of substantial change was higher ed. The University of Minnesota and Minnesota State systems would receive additional dollars to support their students under the governor's latest proposal. Over the FY 2020-21 biennium, the University of Minnesota and Minnesota State would receive an additional $51 million and $65 million respectively, an increase of $25 million from the original budget. These funding increases are expected to help these institutions keep up with the costs involved with educating their students. In return, the University of Minnesota and Minnesota State are expected to minimize any increases in tuition.

    Health and human services

    Walz’s revised budget includes changes in the realm of health and human services. Fortunately, many of our priorities in this budget area, including the repeal of the provider tax sunset and the $100 per month increase to the MFIP welfare cash grant, are retained in the revised budget.

    Child care assistance (CCAP) would see several major changes compared to the governor’s original proposal. While it would still receive a funding bump to take 1,000 families off the waiting list, other provisions changed significantly. For example, child care providers would see one near-term increase in their reimbursement rates under the updated proposal, but future rates would not be automatically updated every three years (as was the case in Walz’s original proposal). This change reduces the amount going to increasing provider rates by $46 million in FY 2022-23. This is an issue policymakers will need to revisit, as reasonable reimbursement rates for providers is an important factor in ensuring parents have options. The governor’s revised proposal also includes over $2 million in FY 2020-21 in new spending on oversight and integrity of CCAP, including 10 additional staff members to analyze data and conduct inspections. 

    Finally, more money will be returned to the state’s general fund and health care access fund (HCAF) due to updated projections for the Minnesota Premium Security Plan (also known as reinsurance). Reinsurance provided payments to health insurance companies to reduce costs in the individual health insurance market, and the program is set to end in 2019. The updated numbers show $142 million transferring back to the general fund, and $394 million transferring back to the HCAF. Final numbers will be available later this year.

    Taxes

    The revised budget retains the original focus on raising the revenues needed to fund health care, transportation, and other services Minnesotans count on to thrive. It proposes raising an additional $65 million in general fund revenues FY 2020-21 through a set of four measures they identify as addressing corporate loopholes, and by changing the timing of two existing tax proposals.

    One challenge facing the state outlined in the February Forecast is that Minnesota has a forecasted surplus in the near term (the FY 2020-21 biennium) but falls just short of having enough revenues coming in to cover anticipated spending in the next budget cycle (FY 2022-23). Walz's budget proposal balances in each of the two budget cycles, in part by carrying forward positive balances at the end of FY 2020-21 to cover expenses in FY 2022-23. Walz's budget makes needed investments in our future prosperity and proposes raising additional revenues fund those investments; there will still be more for policymakers to do reach sustainability past the four-year budgeting window.

    What's next

    The House released their budget targets earlier week, and the Senate released their targets today. These targets set the stage for both legislative bodies to start putting together their FY 2020-21 budgets. Stay tuned to stay up to date on how the state's budget comes together!

  • House budget targets call for revenue raising, investments in education

    by Clark Goldenrod | Mar 27, 2019
    The Minnesota House's budget targets, released this week, tell us how lawmakers propose to allocate the state’s projected $1.1 billion surplus for FY 2020-21. The House's "Minnesota Values Budget" makes substantial investments in education, as well as other budget areas, and includes a $1.5 bonding bill. The House targets also would raise additional revenues to support new investments, given the short-term nature of the projected surplus.

    The targets are an important milestone in the budgeting process. They set the size of the House’s omnibus budget, tax, and bonding bills. Each legislative body sets their own targets, and the Senate is expected to announce their targets Thursday.

    House General Fund Targets (net changes) FY 2020-21
    Education $900 million
    Higher Education $305 million
    Capital Investment (debt service) $142 million
    Health and Human Services $129 million
    Public Safety $121 million
    State Government $103 million
    Greater Minnesota Economic Development $100 million
    Judiciary $91 million
    Jobs and Economic Development $84 million
    Environment and Natural Resources $33 million
    Housing $26 million
    Agriculture $7.6 million
    Veterans and Military Affairs $4.3 million
    Energy and Climate $2 million
    Other Bills $15 million
    Transportation -$425 million
    Taxes and Local Aids $1.2 billion

    The largest proposed targets are in E-12 Education and Higher Education. House leadership indicated that this money would support all Minnesota students and freeze tuition at public higher education institutions. While the House targets are broadly similar to the priorities laid out in Governor Tim Walz's budget proposal, this is one area where they go further.

    The proposed targets describe the net changes to state general fund spending in each area, and could also reflect revenue increases or transfers between funds. For example, the -$425 million general fund target for Transportation should not be interpreted as calling for a $425 million cut in transportation funding. It likely reflects reducing the amount of general fund dollars going toward transportation and instead using the more traditional dedicated transportation funding sources. House Democrats announced that their Transportation target accounts for a phased-in 20-cent increase to the gas tax, similar to the governor's proposal.

    This budget plan raises general fund revenues as well. When House leadership announced their targets, they emphasized the need for sustainable funding to support quality schools, affordable health care, and economic security. While the details will be released in the next few weeks, they emphasized their tax bill would prioritize seniors, working families, and farmers - in contrast to the 2017 federal tax bill, which provided large, permanent tax cuts for corporations.

    Stay tuned for more analysis of how the pieces of the budget bills come together.

    -Clark Goldenrod
  • Governor’s budget proposal makes major investments in housing, workforce, local communities

    by Betsy Hammer | Mar 13, 2019

    Governor Tim Walz’s budget makes significant investments in housing, workforce development, economic development, and local communities. These proposed changes would mean thousands of Minnesotans across the state would have access to expanded housing opportunities, workplace protections, and economic opportunity for all.

    Housing
    The governor’s budget proposal for the FY 2020-21 biennium includes nearly $132 million in additional general fund housing investments. These dollars would go to expand housing options for families with kids, low- and moderate-income homeowners and home buyers, and people with mental illness. The proposal includes a focus on helping Minnesotans find and keep stable and safe housing, as well as increasing housing opportunities in regions where there isn’t enough housing for a growing workforce.

    Families and financial health
    Minnesota workers of color and low-income workers experience significant disparities in paid leave benefits. About three-fourths of Minnesotans on family or medical leave received some type of wage; however, among low-wage workers, that percentage drops to only 46 percent, and among African American workers only 42 percent of family or medical leaves included pay. Walz proposes a new system for offering paid family and medical leave insurance. While the proposal is a placeholder and leaves the precise details to be developed through the legislative process, data supports the need.

    The governor’s budget also proposes investments for financial fraud awareness and prevention, particularly for seniors. The proposed budget also includes an investment of nearly $2 million per year to enhance state action on wage theft to ensure that workers are paid what they are owed for work completed. This work would also bring in about $172,000 per year in additional penalty revenues for the state. Wage theft disproportionately impacts low-wage workers, women, and workers of color. Additional funding in this area would help the Department of Labor and Industry deploy more resources and more aggressively safeguard Minnesota workers.

    Workforce development
    Walz’s plan includes a “Close the Opportunity Gap” effort with nearly $25 million focused on supporting economic success for Minnesotans of color in the workforce and entrepreneurship realm. The proposal also calls for an additional $8 million per biennium for vocational rehabilitation programs that help people with disabilities find and keep jobs in integrated settings, $1.2 million per biennium for youth skills training focused on experiential learning opportunities, and $1 million for the biennium in one-time funding to support child care providers with business start-up and expansion efforts.

    Local communities
    The proposal includes $70 million for broadband development to improve access in underserved areas, funding for grants to help schools install solar panels, and $2 million in prosperity grants for local governments. These grants would go to support business development, entrepreneur support, and workforce development.

    Overall
    The governor’s proposed housing and economic development budget includes meaningful investments for families, workers, local communities, and businesses across Minnesota. By supporting safe housing, fair workplaces, and vibrant local communities, we can work to ensure economic security for Minnesota families.

    -Betsy Hammer

     
  • Walz-Flanagan human services budget proposal focuses on people

    by Betsy Hammer | Mar 11, 2019

    Governor Tim Walz’s budget proposes over $300 million in new health and human services investments to help Minnesotans stay healthy and safe, and to live in dignity.

    Health care:
    The health care provider tax provides about $700 million each year to provide affordable health care for about one million Minnesotans and other investments in healthy people and communities. Under current law, the provider tax is set to sunset in December 2019. Walz’s budget proposal repeals that end date, ensuring that Minnesotans continue to have access to the care they need to stay healthy.

    Health insurance affordability:
    Minnesotans who use MNsure to get health insurance in the individual market would be able to tap additional affordability tools under Walz’s plan that would roll out over several years. The governor’s budget proposal includes a direct subsidy to reduce monthly premiums by 20 percent, which is estimated to provide relief to about 80,000 Minnesotans. The plan also includes a state premium tax credit, which would help ensure Minnesotans do not have to pay more than 10 percent of their income for health insurance.

    ONEcare MN:
    The governor proposes a major package, called ONEcare MN, aimed at expanding access to high-quality health insurance in the individual market. This proposal would roll out over several years and includes:

    • A high-quality “platinum-level” health insurance plan that offers coverage similar to MinnesotaCare. Currently, this type of comprehensive plan is not available on MNsure.
    • Ensuring that “gold” and “silver” level health insurance plans are available in every region of the state. The state would monitor and analyze the markets, and take action to provide plans when needed to ensure availability.
    • Aligning prescription drug benefit administration across public health care programs to leverage purchasing power and make medicine more affordable.
    • Improving access to affordable dental care for people throughout the state.

    Child care:
    Minnesota’s Child Care Assistance Program (CCAP) brings down the cost of care for about 15,000 Minnesota families. Safe and affordable child care supports families by allowing parents to work while kids are in a supportive environment, and helps employers to find and keep the workers they need.

    The governor’s proposal includes an additional $26 million for child care assistance in the FY 2020-21 biennium, which would serve about 1,000 additional families and cut the current waiting list in half. The proposal also includes increased reimbursements for child care providers, with an additional $9.4 million in the upcoming biennium and $90.6 million in FY 2022-23 to cover this bump. This is an important first step in making sure that providers are adequately reimbursed, which helps ensure families have choices for child care.

    Walz’s proposal also includes $1 million for grants in FY 2020-21 to expand the availability of quality child care in underserved areas. These grants, administered by DEED, would target regions with documented child care and workforce shortages. Funding would help child care providers get up to speed on licensing, regulations, training, facilities, and other business-related issues.

    Cash assistance:
    Walz’s budget includes an important and long overdue step to support Minnesota’s most struggling families on the path to economic security. Families receiving cash grants from the Minnesota Family Investment Program (MFIP) and the Diversionary Work Program (DWP) would see an additional $100 per month – the first increase in 32 years. The governor’s proposal includes $43 million in FY 2020-21 and $62 million in FY 2022-23 to cover the increase.

    Opioid epidemic:
    The governor’s budget contains a multipronged method to address the opioid epidemic, including culturally competent services, Naloxone supplies and training, local community engagement, and improved access to treatment and services. This approach would be headed by a stewardship advisory council and funded by a fee on opioid manufacturers and distributors. These fees are projected to raise $18 million per year.

    Protection for vulnerable adults:
    The proposed budget includes nearly $4 million in grants to safeguard vulnerable adults and make enhancements to the Minnesota Adult Abuse Reporting Center. It also includes expansions for the Ombudsman for Long-Term Care, regulatory reforms for assisted living facilities, adult day center oversight, and more.

    Mental health:
    A focus on mental health is very present in the proposal. Walz’s budget would increase school-based mental health grants to serve 7,000 more students, and would expand and improve children’s intensive in-patient services. Also, the plan includes investments in community behavioral health clinics, rural counseling services, and improvements to better align mental health and substance abuse disorder treatment.

    Disability services:
    Walz’s proposed budget includes pay increases for people who care for people living with disabilities. Under the plan, formulas used to calculate wages for people who provide home and community-based services would include a “competitive workforce factor.” This adjustment is intended to make wages more aligned with competing jobs, and clocks in at nearly $18 million for the biennium. Additionally, Personal Care Attendants, who provide support to ensure Minnesotans can live in home or in their communities based on their individual preferences, would also see an increase in minimum pay, holidays, and basic time off.

    Child welfare:
    The governor’s proposed budget includes investments in child welfare statewide, including regional development hubs, a training academy, prevention grants, and a fix to address health care coverage gaps for kids in foster care. The plan also includes $8.2 million in FY 2020-21 and $19 million in FY 2022-23 to expand the American Indian Child Welfare Initiative, which supports tribal delivery of child welfare and child abuse prevention for American Indian kids and families.

    Reinsurance remainder:
    The proposed budget also includes the technical transfer of funds leftover after the conclusion of the Minnesota Premium Security Plan, also known as reinsurance, which provided payments to health insurance companies to offset costs in the individual health insurance market. This program is set to end in 2019, resulting in final payments to insurers in August 2020. The remainder, estimated at $281.4 million, would be transferred to the Health Care Access Fund. There, it would support health care access and public health activities.

    Overall:
    The Minnesota Budget Project is pleased that some of our policy priorities, like maintaining the provider tax and investments in affordable health care, child care, and family economic stability, are included in the governor’s proposed budget. While the proposal is just the first stage in the lengthy process of creating the state budget, it’s a meaningful statement and contains important elements for Minnesota’s kids, families, and workers.

    -Betsy Hammer

     
  • Governor Walz’s FY 2020-21 budget proposal makes important investments to build prosperity in Minnesota

    by Clark Goldenrod, Betsy Hammer, Nan Madden | Feb 19, 2019

    In his release of his FY 2020-21 budget proposal today, Governor Tim Walz outlined his priorities for “One Minnesota” that would raise funds to invest in health care, child care, education, and transportation to build broader prosperity that reaches every community.

    Walz proposes $2 billion in net additional general fund spending and $1.3 billion in net revenue increases in FY 2020-21. This leaves $789 million of the projected surplus unspent, or “on the bottom line.”

    Governor Walz FY 2020-21 Budget Proposal – Net General Fund Impact
    E-12 Education $733 million
    Health and Human Services $284 million
    Public Safety and Judiciary $233 million
    Jobs, Economic Development, Housing, Commerce $213 million
    Higher Education $158 million
    State Government and Veterans $112 million
    Property Tax Aids and Credits $77 million
    Transportation $77 million
    Environment $38 million
    Agriculture $8.9 million
    Debt Service, Capitol Projects, Other $85 million
    New Revenues $1.3 billion

     

    The state’s budget can be a powerful tool to advance racial equity and make opportunities available to every Minnesotan, regardless of who they are or where they live. Not everyone in Minnesota is succeeding in today’s economy. In particular, we know that communities of color often face barriers to economic security, from the lack of public investment in schools or transportation options in their communities, to discrimination in the labor market.

    We’ll be looking more closely at the governor’s budget proposal in the coming days, but today touch on some of the pieces that most caught our attention, including initiatives that we think help make Minnesota a place where everyone can thrive.

    Taxes

    The governor’s tax plan seeks to raise the sustainable revenues needed to build broader prosperity and make tax policy choices that strengthen families and communities.

    One of the important tasks for Minnesota policymakers this year is to update Minnesota’s tax code in the wake of the 2017 federal tax bill, which unfortunately provided the largest tax cuts to profitable corporations and high-income people. Walz’s tax conformity proposal takes another approach. For individuals and families, his proposal would update Minnesota’s tax code in ways that maintain many of the deductions and exemptions that were available before the federal tax law’s changes. It also conforms to most federal changes for corporations and businesses. Some of these provisions raise taxes and some cut taxes; in total, tax conformity for businesses raises state revenues.

    Walz’s tax proposal also prioritizes working people and their families by expanding the state’s Working Family Credit, a state tax credit that boosts incomes and gets children off to a stronger start. The governor makes the case that an additional reason to expand the Working Family Credit this year is to offset the impact of the gas tax increase on these Minnesotans. The budget would expand the Working Family Credit by about $50 million a year through two policy changes:

    • Providing an expanded tax credit for families with three or more children; 46,700 families would benefit by an average of $227; and
    • Increasing the Working Family Credit by $100 for households headed by a single person and $200 for households headed by a married couple.

    Walz’s budget plan also would reverse three tax cuts passed in 2017 that over time have taken a bigger and bigger bite out of state revenues. His proposal would reinstate inflation adjustments for tobacco taxes and the statewide property tax paid by businesses, and freeze the exemption amount for the estate tax at current levels (rather than allowing it to rise further.)

    The proposal would increase state aids to cities and counties by about $60 million a year; this would support services in local communities and reduce reliance on local property taxes.

    And Walz’s plan would treat homeowners equitably by allowing immigrants who own their homes to gain homestead status. Currently, some Minnesota homeowners pay higher property taxes simply because they file their taxes with an Individual Taxpayer Identification Number (ITIN) instead of a Social Security number.

    Health care

    The governor’s proposed budget includes many important investments to help Minnesotans stay healthy and afford quality health care.

    The health care provider tax is an important source of funding for affordable health care for over one million Minnesotans. However, the provider tax is set to sunset later this year. The governor’s budget proposal repeals the sunset, ensuring that the Minnesotans receiving coverage through Medicaid and MinnesotaCare will have the care they need to stay healthy.

    Minnesotans who get health insurance through MNsure would have additional assistance to make health care affordable. Walz’s proposed budget includes premium assistance to bring down the costs for Minnesotans who buy insurance in the individual marketplace, and a state premium tax credit. The governor’s proposal projects that by 2023, over 34,000 Minnesotans currently using MNsure would be able to tap the tax credits, and an additional 13,000 Minnesotans would likely enroll in health insurance using MNsure as a result.

    The governor also proposed a major package, called ONEcare MN, aimed at expanding access to high-quality health care on the individual market. This proposal would roll out over several years and includes:

    • A high-quality “platinum-level” plan that offers coverage similar to MinnesotaCare.
    • Ensuring that “gold” and “silver” level health insurance plans are available in every region of the state.
    • Aligning prescription drug benefits to leverage purchasing power and make medicine more affordable.
    • Improving access to affordable dental care for people throughout the state.

    Child care

    In his budget, Walz proposes major investments in affordable child care that will help families afford care for their kids while parents work. Under this proposal:

    • 1,000 additional Minnesota families would receive child care assistance (CCAP), which would make a significant dent in the current waiting list.
    • Child care provider rates would better reflect market rates. Adequate provider reimbursements are key to ensuring families have choices when selecting a child care provider, and this is an important step in that direction.

    Transportation

    The governor’s proposal includes a substantial transportation component. Through this budget, the Department of Transportation expects to address snow and ice maintenance on the roads, repair potholes, inspect and maintain our state’s bridges, and build a safer transportation system. Transit investments include funding for Metro Mobility services, which serve elderly Minnesotans and Minnesotans living with disabilities, as well as for increasing bus rapid transit lines.

    Walz proposes a few funding mechanisms for his proposal, the largest of which is increasing the gas tax. Walz proposes raising the tax by 20 cents, and then indexing it to inflation so that it can keep up with the state’s transportation needs. This tax increase also makes it possible for the governor to return certain funding sources that are currently being diverted to transportation back into the General Fund, where they can be used for investments like quality education and health care.

    Education

    The governor proposes $733 million in additional funding for education. He proposes increasing funding for school districts through the basic student formula by 3.0 percent in FY 2020 and 2.0 percent in FY 2021. That’s an increase of $189 per student the first year and another $130 the second year.

    In higher education, he proposes to make college more affordable through an additional $54 million in FY 2020-21 for financial aid through the State Grant Program. As part of this, he includes an important improvement to financial aid. Minnesota Dreamers – young people who came to the country as children and do not have legal status – are ineligible to receive federal Pell Grants. However, the State Grant formula currently calculates financial aid assuming students receive this federal grant, meaning that Dreamers receive much less aid than they need to afford college. The proposal would increase the grant award for these students, making college education more in reach for all of Minnesota’s young people.

    The big takeaways

    The positive balances projected in the state’s recent forecast present some opportunity for policymakers to build toward shared prosperity. But it’s also clear that the smaller future projected surpluses aren’t enough to make the investments Minnesota needs in its people and communities. Walz’s budget proposes responsible policies to both build prosperity for Minnesotans today and provide stability for Minnesotans in the future.

    Stay tuned for our upcoming in-depth dives into some of the governor’s proposals. In the meantime, you can download the governor’s budget materials at Minnesota Management and Budget’s website.

    -Clark Goldenrod, Betsy Hammer, Nan Madden