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Process & Reforms

  • What does improved April economic update mean for budget negotiations?

    by Clark Goldenrod | May 03, 2021
    The state’s economic picture has improved compared to the February forecast, according to the recent April Revenue and Economic Update. While the Update gives reasons to be cautiously optimistic, uncertainty about the pandemic and the economy remain. We also know that many Minnesotans continue to feel the economic fallout from COVID-19 as well as the deep impact of racism in our economy and institutions. Some of the top takeaways from the Update include: 

    1. State general fund revenues to date came in higher compared to the February forecast. Revenues for February and March 2021 came in $563 million – or 20 percent – higher than the earlier projection. Corporate and individual income tax revenues were the largest sources of this increase. However, the Update notes that it is still too early to say whether these increases are due to improvements in incomes and corporate profits. Changes in tax-filing deadlines are one of the factors making it more difficult for forecasters to extrapolate whether this data reflects an improving trend or timing issues. In addition, the state has received additional tobacco settlement revenues that are now included in the budget baseline.
    2. Near-term economic expectations are somewhat improved. After a 3.6 percent reduction in the nation’s GDP last year, the economic forecasters now predict 6.2 percent growth in national GDP in 2021. That’s stronger than the 5.7 percent projected in February. This stronger projection is largely due to increased consumer spending and a faster vaccination rollout. Forecasters have dialed back their projections for economic growth in 2023 to 2025, when growth rates a bit above 2 percent are expected.
    national GDP growth in April economic update
    3. Unemployment is expected to decrease over the course of 2021, but many people are still out of work. This March, the national unemployment rate was 6.0 percent, down from the peak of 14.7 percent in April 2020. IHS, the state’s economic forecasters, expect U.S. unemployment will further decline to 4.3 percent by the end of 2021. However, this doesn’t mean the labor market has fully rebounded. The unemployment rate doesn’t capture those who have left the labor force during the pandemic – for example, workers who have stopped looking for work for now. The national labor force participation rate in March was nearly 2 percentage points lower than it was a year ago. 
    4. Forecasters are only somewhat confident in their projections. The nation’s economic performance is dependent on the severity of the pandemic and the effectiveness of efforts to bring it under control. Uncertainty about the course of the pandemic is reflected in forecasters’ uncertainty about their economic projections. They assign a 50 percent chance that their baseline economic scenario is correct. They give a 25 percent chance for a more pessimistic scenario in which the pandemic causes greater economic harm, and a 25 percent probability to a more optimistic scenario in which the impact of COVID-19 is less severe.

    Our take on what this means for budget and tax decisions this session 

    The April Update provides some updated information about the state’s budget and economic landscape, but the February Forecast remains the reference point that policymakers will use to understand what resources are available as they craft the state’s next two-year budget. While there are signs of improvement, the Update also is clear that the economic damage of the pandemic is far from over.  

    The federal government’s recent American Rescue Plan included important economic supports for individuals and families and essential additional funding to bolster services provided by state, tribal, and local governments. The April Update’s economic growth projections reflect the current and anticipated impact of this stimulus bill – a larger one than was anticipated in the February Forecast – but these additional federal dollars are not incorporated into the general fund revenues reported in the April Update.  

    These federal funds provide an important source of resources to take action to advance Minnesotans’ health and well-being through investments in things like our schools, affordable housing, health care, a more equitable justice system, and support for BIPOC-owned businesses. Policymakers must intentionally address the state’s deep divides in opportunity and well-being across race, income, and geography. Passing a “status quo” budget that leaves systemic barriers in place is not acceptable.   

    However, the additional federal funding is temporary; policymakers should look to maintain needed investments by raising additional revenues from those with the greatest ability to contribute a bit more. 
  • State budget process kicks off amid unusual uncertainty

    by Betsy Hammer | Oct 01, 2020

    Fresh pencils for back to school, shorter days, bright red maples – these are a few of the classic harbingers of fall. Here at the Minnesota Budget Project, we observe another: instructions to state agencies as the executive branch starts the process of preparing the governor's budget proposal. 

    The process to prepare Governor Tim Walz's FY 2022-23 Minnesota state budget proposal is especially challenging for many reasons. First, the state is facing budget shortfalls as a result of the pandemic and economic downturn: $2.4 billion for the current FY 2020-21 biennium and $4.7 billion in FY 2022-23. Legally, Walz is required to prepare a proposal that brings the state budget back into balance. (More about how we encourage advocates to think about the state’s budget debate in a moment.) 

    Further, the budget landscape for FY 2022-23 will be impacted by decisions the administration makes about addressing the FY 2020-21 budget shortfall – for example, whether it is largely resolved by drawing on the budget reserve, and any other steps they may take to respond to the ongoing coronavirus pandemic. 

    In addition, there’s a great deal of uncertainty that will shape the landscape, including: 

    • Will the state get additional COVID-19 relief funding from the federal government? If we do, when will it come and what could it cover? Though it was anticipated that the federal government would have by now provided additional COVID-19 relief and economic stimulus legislation, those negotiations have not resulted in agreement and any action might not occur until early 2021. 

    • What are the outcomes of the state legislative elections in November?  

    Amid these uncertainties, the governor, the state’s fiscal agency Minnesota Management and Budget (MMB), and all state agencies are hard at work to develop Walz’s proposal for the state’s next two-year budget. Currently, state agencies are preparing a menu of budget options for the governor to consider, which happens during the confidential budget development process. Agencies are asked to describe their priorities, including a review and prioritization of current activities, and develop options to save money, particularly in the state’s General Fund. Agencies can make requests for new funding in some limited cases, after conversations with the governor’s office and MMB.  

    After the state’s November budget and economic forecast is released at the beginning of December, the administration will have another very important piece of the budgetary puzzle: updated information about projected revenues and spending under current budget commitments, which they will use to make decisions about what will go in the governor’s budget proposal.  

    The executive branch review and analysis will culminate with the governor’s budget proposal released no later than January 26, 2021, as required by state law.  

    That’s just the start of the budget-setting process. Next, the Legislature takes up the baton to work through its role in developing and passing the state’s budget. Often that budget work starts in earnest after the February forecast is released.  

    What does this mean for the 2021 Legislative Session and budget debate? 

    We’ve been hearing from advocates thinking ahead to 2021 about how to balance the reality of the state’s budget shortfall with the conviction that this is a moment for policymakers to act boldly to tackle the public health, economic, and racial equity challenges facing our state.

    We all must continue to lift up what’s needed for Minnesotans to be healthy, safe, and financially secure. We must talk about the essential role that schools, health care, affordable housing, and other public services play in building thriving communities – and why we must change the ways we’ve fallen short, especially for our Indigenous neighbors and communities of color. 

    We all can emphasize what’s needed while still taking the budget shortfall seriously. The way to do that is by calling on policymakers to draw on the resources needed: the state’s budget reserve, robust federal aid to states, and raising state revenues – particularly by asking those doing well, like profitable corporations and the wealthy, to shoulder more of the responsibility of funding essential public investments to secure the health and well-being of all Minnesotans. 

  • Special session begins; Minnesotans call for bold action

    by Clark Goldenrod | Jun 15, 2020
    To say the 2020 Legislative Session was unusual would be an understatement. In February, COVID-19 didn’t seem like an immediate threat and Minnesota’s state budget was showing a $1.5 billion positive balance.  

    Fast forward to today, and the state is under a peacetime emergency due to coronavirus. We are also looking at nearly 30,000 cases of coronavirus in the state as of June 12, more than 776,000 claims for unemployment insurance since mid-March, and a $2.4 billion state budget shortfall.  

    And on May 25, George Floyd was killed at the hands of the Minneapolis Police Department. His horrific death has sparked global protests and deep conversations about the future of policing and the urgency to build a state where we all feel safe, regardless of race, religion, or region.  

    Policymakers came back into special session on June 12, triggered by the fact that Governor Tim Walz has renewed the state peacetime emergency for another month. Minnesotans are calling for bold action from policymakers, to truly listen to the Black, Brown, and Indigenous Minnesotans who have long called for justice, and to make a concerted, inclusive response to the economic and health crises that COVID-19 has brought on.  

    How did the regular session end? 

    Policymakers took several important steps to respond to the health and economic components of the COVID crisis during the regular session. Walz issued executive orders to extend eligibility and increase flexibility to ensure Minnesotans had continued access to health care, economic supports, and other essential services. The Legislature passed a COVID response package that included additional funding for emergency child care grants, food shelves, housing and homelessness services, and support for businesses.  

    However, by the time the regular session ended on May 18, several important issues were still at play, including investing in Minnesota’s infrastructure through a bonding bill; economic security legislation passed by the House that included provisions such as housing assistance and emergency cash payments to very low-income children and their families participating in MFIP; and economic assistance to Minnesotans who had been left out of the federal CARES Act.   

    What’s next?  

    Walz has emergency authority powers so that he can respond quickly to the COVID-19 crisis. He can only renew this authority for a month at a time; when he announced renewal of that authority earlier this week, he also called the special session which allows the Legislature to respond. While the Senate voted to rescind that authority, the House voted down an effort to end the peacetime emergency, which means it will be in place for another month. It is possible that, if the governor chooses to continue his emergency powers in future, that there will be additional special sessions called later in the summer.  

    Changes to Minnesota’s policing practices will be front and center during the special session. In response to the death of George Floyd, the legislators in the POCI (People of Color and Indigenous) caucus put forth a set of policy proposals to change the way policing systems work across the state. These proposals range from changing the training methods that police are taught to investing in community-based mental health services. It’s well documented that Black and Brown people are disproportionately policed, arrested, and incarcerated in our current criminal justice system.  

    State policymakers also need to support the rebuilding of the communities most impacted by the events of the past several weeks, targeting that investment to those who built those communities in the first place, and avoiding the loss of generational wealth and displacement that could happen without intentional investment. Passing the POCI caucus package and focused reinvestment dollars would be important first steps, part of action needed at multiple levels of government, which center the voices and experiences of Black and Brown communities and creates a Minnesota where there truly is justice and opportunity for all.  

    Policymakers also should act in special session on other unfinished business, enacting the following concrete steps that respond to the current public health and economic crises and prioritize the Minnesotans who have been hardest hit: 
    • Provide a one-time emergency assistance payment for families participating in the Minnesota Family Investment Program (MFIP). This would provide financial resources for some of the state’s most struggling families, helping them to afford essentials like rent, food, and diapers. This policy would be good for our economy too, as the most effective way to provide economic stimulus is to get resources into the hands of those who will quickly spend those dollars. 
    • Provide COVID-related economic assistance to those left out. The “economic stimulus payments” paid directly to Americans through the CARES Act left out teenagers, young adults, and persons with disabilities whose families claim them as dependents on their taxes, as well as households in which a family member uses an ITIN (Individual Tax Identification Number). These folks have been impacted by the coronavirus like other Minnesotans; the state needs to step in where the federal government failed to support these individuals and families.  
    • Increase funding for affordable child care. Minnesotans were struggling to afford child care before COVID hit, and access to affordable child care will be especially important as people are increasingly back at work. Policymakers should take the common-sense step of increasing Minnesota’s out-of-date reimbursement rates to child care providers and bring Minnesota into compliance with federal requirements.  
    • Support essential local services through financial support to cities and counties. The federal CARES Act passed in March allocated $1.9 billion to the state of Minnesota to respond to emerging needs due to COVID, and encouraged states to distribute about half of that amount to local governments. Local governments have faced increased costs as they seek to respond to the public health crisis; additional dollars means they can keep meeting their residents’ needs and keep important public workers on the job.  
    • Pass an equitable bonding bill that requires projects funded by state general obligation bonds proceeds to comply with human rights provisions related to gender and race equity in hiring, and that supports capital projects from community-based organizations that are led by and serve communities of color and Native Americans.  
    Time is of the essence. The COVID-19 crisis, and the longstanding crises in policing and racial inequity in Minnesota, have damaged our health, livelihoods, and communities. Policymakers must take bold steps to better ensure Minnesotans can stay healthy, safe, and get by economically in the immediate term, and invest in resilience in all communities for the future. 
  • April economic changes bring May budget projections

    by Betsy Hammer | Apr 29, 2020

    The novel coronavirus pandemic is having a significant effect on Minnesotans' physical and mental health of Minnesotans. Unprecedented businesses closures and job losses as a result of the pandemic are having real impacts on Minnesotans and their pocketbooks. Those financial implications will also echo in the state government’s financial health.

    We’ve started to see evidence of this impact trickling in, as we reported on the state’s April economic update, but the magnitude of the impact to state finances has also inspired another unprecedented step: a new state budget projection expected to come the week of May 4. The economic data from the April quarterly update will be used as the working scenario to produce the May report.

    This projection will inform the crucial work of state policymakers to ensure that Minnesotans have the health care and economic supports they need to get by, and to lay the groundwork for a stronger Minnesota when we come through the other side.

    A May budget projection is a new step in the long-established schedule of state forecasts and economic updates. It will not be a full state budget forecast like we typically see in November and February. Minnesota Management and Budget (MMB) will also continue releasing their other regularly-scheduled reports, like end-of-session fund balances, quarterly economic updates, and monthly revenue memos.

    Since this is a new tool, we are not exactly sure what it’ll look like – but here’s what we’re hearing:

    • The projection will be for the current FY 2020-21 biennium only. Typically, state budget forecasts include a peek into the future biennium, but uncertainty is too high for that type of estimation right now.
    • The data available to make the projection are much more uncertain than the state normally uses. The state’s economic forecasters give less than a 50 percent chance that the economic scenario that will underlie the projections is correct, and timing delays mean the revenue data the state has to work with has less predictive power than usual.
    • The projection will cover the state’s general fund, Health Care Access Fund (HCAF), legacy, and transportation funds.
    • It may include some information on the important federal funds that are coming to the state for COVID response, health care, child care, and other essential state services. However, federal funds don’t go into the state’s general fund - so they aren’t part of the calculations for the most commonly-heard state budget figure, the balance in the general fund.
    • The projections will include updated information on forecasted services in the Department of Human Services; “forecasted” programs are those that by law automatically change in response to things like the number of people who qualify for services.
    • Revenue updates will focus on the largest state revenue streams, the revenue streams most sensitive to economic downturns, and/or where experts have good data to make new estimates. We have heard this will include income, sales, corporate, alcohol, lawful gambling, and transportation taxes.

    Keep an eye on our blog and social media channels for continued updates as we work through this tumultuous time. 

  • Legislative Budget Office will make its debut in upcoming session

    by Betsy Hammer | Jan 28, 2020

    The 2020 Legislative Session will involve a new player: the Legislative Budget Office, or LBO. The LBO will be responsible for producing fiscal notes, working in concert with state agencies to estimate the fiscal impact of proposed legislation – essentially how proposed legislation might impact the state’s budget through costs, savings, or revenue changes.

    If fiscal notes sound familiar, you’re not imagining it: fiscal notes have been an essential element of the Minnesota legislative process for decades. They are one of the important pieces of information provided when a bill is being considered by legislators. Through August 2019, Minnesota Management and Budget, an agency within the state’s executive branch, was responsible for fiscal notes. The new arrangement arose from 2017 legislation that created the LBO. Another wonky but important wrinkle: bills relating to taxes get estimates from the experts at the Department of Revenue, and that process will not change with the new LBO.

    The LBO’s mission is “to provide legislators with the estimated fiscal impact to the state budget for legislation under consideration,” and notes that the office is similar to the Congressional Budget Office, which “performs similar analysis for the United States Congress.” Some other states have similar structures, too.

    The LBO team includes Director Michelle Weber, Coordinator Kathryn Ho, and nine analysts who specialize in particular policy areas.

  • 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

Projections & Trends

  • What does improved April economic update mean for budget negotiations?

    by Clark Goldenrod | May 03, 2021
    The state’s economic picture has improved compared to the February forecast, according to the recent April Revenue and Economic Update. While the Update gives reasons to be cautiously optimistic, uncertainty about the pandemic and the economy remain. We also know that many Minnesotans continue to feel the economic fallout from COVID-19 as well as the deep impact of racism in our economy and institutions. Some of the top takeaways from the Update include: 

    1. State general fund revenues to date came in higher compared to the February forecast. Revenues for February and March 2021 came in $563 million – or 20 percent – higher than the earlier projection. Corporate and individual income tax revenues were the largest sources of this increase. However, the Update notes that it is still too early to say whether these increases are due to improvements in incomes and corporate profits. Changes in tax-filing deadlines are one of the factors making it more difficult for forecasters to extrapolate whether this data reflects an improving trend or timing issues. In addition, the state has received additional tobacco settlement revenues that are now included in the budget baseline.
    2. Near-term economic expectations are somewhat improved. After a 3.6 percent reduction in the nation’s GDP last year, the economic forecasters now predict 6.2 percent growth in national GDP in 2021. That’s stronger than the 5.7 percent projected in February. This stronger projection is largely due to increased consumer spending and a faster vaccination rollout. Forecasters have dialed back their projections for economic growth in 2023 to 2025, when growth rates a bit above 2 percent are expected.
    national GDP growth in April economic update
    3. Unemployment is expected to decrease over the course of 2021, but many people are still out of work. This March, the national unemployment rate was 6.0 percent, down from the peak of 14.7 percent in April 2020. IHS, the state’s economic forecasters, expect U.S. unemployment will further decline to 4.3 percent by the end of 2021. However, this doesn’t mean the labor market has fully rebounded. The unemployment rate doesn’t capture those who have left the labor force during the pandemic – for example, workers who have stopped looking for work for now. The national labor force participation rate in March was nearly 2 percentage points lower than it was a year ago. 
    4. Forecasters are only somewhat confident in their projections. The nation’s economic performance is dependent on the severity of the pandemic and the effectiveness of efforts to bring it under control. Uncertainty about the course of the pandemic is reflected in forecasters’ uncertainty about their economic projections. They assign a 50 percent chance that their baseline economic scenario is correct. They give a 25 percent chance for a more pessimistic scenario in which the pandemic causes greater economic harm, and a 25 percent probability to a more optimistic scenario in which the impact of COVID-19 is less severe.

    Our take on what this means for budget and tax decisions this session 

    The April Update provides some updated information about the state’s budget and economic landscape, but the February Forecast remains the reference point that policymakers will use to understand what resources are available as they craft the state’s next two-year budget. While there are signs of improvement, the Update also is clear that the economic damage of the pandemic is far from over.  

    The federal government’s recent American Rescue Plan included important economic supports for individuals and families and essential additional funding to bolster services provided by state, tribal, and local governments. The April Update’s economic growth projections reflect the current and anticipated impact of this stimulus bill – a larger one than was anticipated in the February Forecast – but these additional federal dollars are not incorporated into the general fund revenues reported in the April Update.  

    These federal funds provide an important source of resources to take action to advance Minnesotans’ health and well-being through investments in things like our schools, affordable housing, health care, a more equitable justice system, and support for BIPOC-owned businesses. Policymakers must intentionally address the state’s deep divides in opportunity and well-being across race, income, and geography. Passing a “status quo” budget that leaves systemic barriers in place is not acceptable.   

    However, the additional federal funding is temporary; policymakers should look to maintain needed investments by raising additional revenues from those with the greatest ability to contribute a bit more. 
  • Budget forecast shows welcome news but Minnesota needs resources for an equitable future

    by Clark Goldenrod | Mar 02, 2021
    The state’s new budget projections give the latest on the continuing impact of the pandemic, and a preliminary sense of the positive effects from the federal government likely passing COVID relief legislation at the scale this moment demands. 

    The good news is that Minnesota is expecting more resources than was projected in the last forecast, despite the ongoing economic disruption caused by COVID-19.  

    But an improving state budget situation is not a sign that everyone is doing well. This winter, hundreds of thousands of Minnesotans said they didn’t have enough to eat, were behind on rent, and had difficulty covering basic expenses. And because of long-standing structural inequities, our Black and Brown neighbors are being disproportionately harmed by the virus and its economic impact.   

    The forecast highlights the uneven nature of this recession, noting that low-wage workers have been much more likely to lose their jobs than high-wage workers. While some sectors of the economy and high-income workers have already recovered, the service economy’s recovery will be dependent on widespread COVID-19 vaccinations.  

    It’s important to keep in context what the forecast does and does not include. The forecast measures projected state revenues against a baseline budget that does not include the full cost of tackling the pandemic or even existing services keeping up with the cost of inflation over time. 

    What these new numbers do tell us is that Minnesota has more resources than was previously thought. However, state revenues still are down compared to what was expected in February 2020. Revenues for FY 2020-21 are $1.2 billion lower than expected a year ago and revenues for FY 2022-23 are $461 million lower.  

    It will be essential that policymakers deploy resources in ways that focus on those who have been hardest hit by the pandemic, and address the need for long-term, sustainable investments to build a more prosperous and equitable state.   

    Some of the key data in the forecast include: 
     
    1. The state is projecting a $940 million positive balance for the FY 2020-21 budget cycle, which ends on June 30, 2021. 

    2. The forecast predicts a $1.6 billion positive balance for FY 2022-23, which shrinks to $529 million when including what it would take for most current public services to keep up with inflation. For scale, $529 million is about one percent of the total general fund budget. The $1.6 billion includes the $940 million positive balance carried forward from FY 2020-21. 

    3. The forecast gives somewhat improved numbers for FY 2024-25. Forecasters predict a structural balance of $845 million, which becomes a deficit of $1.7 billion when the impact of inflation is included.  

    4. After a sharp decline last year, the national economy is expected to see 5.7 percent growth this year. Forecasters project that the economy will continue to grow over the next few years, albeit at a slower pace, with annual growth hovering around 2.5 percent from 2023 to 2025. 

    national GDP growth in February 2021 forecast

    5. Unemployment during this economic downturn has disproportionately hit  lower-wage workers – more than half of all initial unemployment claims since mid-March were from workers in lower-paid occupations. Additionally, many workers have left the labor force. As of January, the national labor force participation rate (the proportion of folks who are working or looking for work) had dropped to 61.4 percent, which is the lowest since 1976. 

    6. Forecasters are only somewhat confident in their projections. The nation’s economic performance is dependent on the severity of the pandemic and the effectiveness of efforts to bring it under control. Uncertainty about the course of the pandemic is reflected in forecasters’ uncertainty about their economic projections. They assign a 50 percent chance that their baseline economic scenario is correct. They give a 25 percent chance for a more pessimistic scenario in which the pandemic causes greater economic harm. They assign a 25 percent probability to a more optimistic scenario in which the impact of COVID-19 is less severe and federal policymakers pass a larger stimulus bill.

    Smart federal and state policy decisions are contributing to improved state budget numbers. The forecast includes the effects of state legislation passed in December to support unemployed workers and struggling businesses. Some of the improved forecast picture is due to the additional federal COVID relief bill that’s expected to come out of Congress soon. While the U.S. House recently passed a $1.9 trillion federal relief bill, the forecast assumes Congress will pass a compromise $1.5 trillion bill that includes another round of stimulus checks, extended unemployment insurance, funding for COVID-19 mitigation efforts, and “significant aid” to state, local, and tribal governments. About 1.5 percentage points of the increase in GDP growth this year is due to this expected federal legislation. The forecast numbers do not include additional federal aid directly to state government that is expected in the COVID legislation.    

    It is good news that the state can expect more resources to take action to advance Minnesotans’ health and economic well-being during COVID.  

    However, when looking at the next biennium, the state has a small structural balance that turns into a deficit when inflationary costs are included in the picture. This highlights the gap between what the state’s current revenue system brings in and what is needed for all Minnesotans to thrive. The federal funding likely coming to Minnesota is temporary and doesn’t solve this problem. 

    And we can’t divert our attention from the ways deep divides in opportunity and well-being across race and income are being highlighted and widened right now. Passing a “status quo” budget that leaves these barriers in place is not acceptable.  

    Instead, Minnesota must take bold steps to address the pandemic and build a more equitable future through investments in things like our schools, health care, and BIPOC-owned businesses and communities. The individuals and businesses with the most resources can contribute a bit more to build a new, equitable vision for the state. 
  • January economic update shows some improvement

    by Clark Goldenrod | Jan 21, 2021

    Highlights the importance of economic supports during the pandemic


    The state’s economic picture has improved compared to the November forecast, but COVID-19 and the economic fallout are still hurting many Minnesotans’ health and economic stability, according to the state of Minnesota’s recent January Revenue and Economic Update. Some of the top takeaways from the Update include: 

    1. Economic expectations are somewhat improved. After a 3.6 percent reduction in the nation’s GDP last year, the economic forecasters now predict 4.0 percent growth in GDP in 2021. That’s an improvement over economic projections from November. This good news is largely due to the recently passed federal stimulus bill, which is projected to improve the 2021 GDP by 1.3 percent, and helps offset the economic drag caused by surging coronavirus cases.

    national GDP growth in January economic update

    2. State revenues to-date came in higher compared to the November forecast. Revenues for November and December 2020 came in $167 million – or 4.3 percent – higher than the earlier projection. Corporate tax revenues were the largest source of this increase. The Update notes that it is likely that uncertainty earlier in the year might have led businesses to make lower tax payments, which they then increased later in the year once they had a better understanding of their profits. 

    3.  Unemployment is expected to decrease over the course of 2021, but many people are still out of work. In December, the national unemployment rate was 6.7 percent -- down from the peak of 14.7 percent in April. IHS, the state’s economic forecasters, expect national unemployment will further decline to 4.3 percent by the end of 2021. However, the report notes that while the unemployment rate has declined, it doesn’t capture those who have left the labor force during the pandemic – for example, workers who have stopped looking for work for now. The national labor force participation rate is almost 2 percentage points lower than it was a year ago. 

    4. Forecasters are only somewhat confident in their projections. The nation’s economic performance is dependent on the severity of the pandemic and the effectiveness of efforts to bring it under control. Uncertainty about the course of the pandemic is reflected in forecasters’ uncertainty about their economic projections. They assign a 50 percent chance that their baseline economic scenario is correct. They give a 30 percent chance for a more pessimistic scenario, in which the pandemic causes greater economic harm. They assign a 20 percent probability to a more optimistic scenario in which the impact of COVID-19 is less severe.

    Minnesotans and people across the nation are still struggling, and there is an ongoing need for policymakers at all levels to respond to the health, economic, and state budget crises. Importantly, the improved economic picture shows the positive effect of the federal economic stimulus passed in December, which included an extension of unemployment insurance benefits, an additional round of stimulus checks, and financial supports for businesses.  

    The federal bill left out adequate funding for state, local, and tribal governments – a problem that we hope will be rectified in a future round of federal COVID and stimulus legislation in order to protect services Minnesotans are counting on and support the economic recovery. Earlier this summer, the July economic update referenced the economic drag created by state and local government budget cuts, and noted that, “Without additional federal support, state and local governments face substantial revenue shortfalls in the coming fiscal years.”  

    Even with the improved revenues reported in the Update, Minnesota is likely facing structural deficits in its upcoming budget cycles, which is an important part of the context as policymakers put together the budget for FY 2022-23. As we’ve noted elsewhere, the state’s official budget projections do not fully measure what it takes for all communities to thrive, and the gap between the state’s current funding commitments and what it is expected to collect in revenues grows larger over time. 

    This is a time that truly requires policymakers to draw on the resources needed to respond to the challenges before us and do what’s needed to build a stronger, more equitable future for all of us. That includes careful use of Minnesota’s strong budget reserve, wise deployment of federal dollars, and raising raise state revenues in ways that make our tax system more equitable, fair, and just. 
  • A deep dive into budget forecast: what it does and doesn’t tell us

    by Clark Goldenrod, Betsy Hammer | Dec 18, 2020
    Minnesota isn’t sustainably bringing in enough revenues to fund its current commitments, which is showing up in a projected $1.3 billion state budget deficit for the upcoming FY 2022-23 budget cycle and a $552 million structural deficit for FY 2024-25, according to the latest November budget and economic forecast. However, the budget outlook is improved compared to what was projected back in May (we’ll talk about what those numbers don’t take into account in a moment).  

    We at the Minnesota Budget Project dove in and read all 97 pages of the forecast to find out what’s behind the new numbers, what it tells us about the current financial picture, and the implications for Minnesota’s ability to rise to the challenges before us.

    One reason for improvement: the drop in state revenues is big, but not as big 

    New understanding of the unequal effects of the recession means state revenues are not predicted to drop as much as previously expected. In May, forecasters anticipated that economic disruption would be felt across a broad spectrum of workers . However, it’s becoming clearer that this downturn may be the most unequal recession in modern history. Lower-income Minnesotans have disproportionately lost their jobs, while high-income people are largely working. Over one-third of initial unemployment claims during the pandemic have come from the 20 percent of workers in the lowest paid occupations, and over half were from lower paid occupations. In contrast, only 15 percent of new unemployment claims have come from the 20 percent highest paid occupations. In the November forecast, this has resulted in a smaller decline in overall wage and salary income than if the impact had been more evenly felt – and thus a smaller decline in state income taxes and other revenues tied to income levels.  

    In addition, forecasters are learning how people are changing their buying habits. Consumers have reduced their spending on services – which are largely not subject to the sales tax – and increased their spending on goods, which are generally taxable. So forecasters are no longer predicting a large drop in sales tax revenues.  

    Another reason for improvement in the forecast: projected state spending is lower than in May

    The forecast has reduced its estimates for spending in the two biggest areas of our state budget – E-12 education and health and human services.  

    One important good reason: increased federal dollars for Medicaid. States and the federal government share responsibility for funding affordable health care coverage through Medicaid (also called Medical Assistance). The federal government’s share of funding, the federal matching percentage or FMAP, was boosted by 6.2 percent earlier in 2020 as part of the Families First Coronavirus Act and the CARES Act. The increased federal contribution ensures that essential health care access will remain in place throughout the public health emergency, and allows the state to reduce its share of funding at a time when its revenues are dropping. State experts now expect that the increased federal funding will be in place through the first half of 2021, resulting in $337 million in state general fund savings.  

    But the forecast also showed lower spending due to Minnesotans not getting the health care they need. Minnesotans are avoiding regular check-ups, preventative care, and crisis care due to the pandemic. That has resulted in lower than anticipated health care use and consequently accounts for $293 million reduction in projected spending in the current biennium and $190 million in the next, compared to May’s estimates. This is concerning, because we know that preventative and regular care is essential to keeping Minnesotans as healthy as possible. Health care providers have reported anecdotal evidence of worsening health outcomes because people didn’t get the care they needed in emergency situations, like strokes and heart attacks. State experts don’t expect health care visits to return to typical pre-COVID levels until FY 2024.  

    E-12 Education also is seeing a reduction in projected spending compared to May: $118 million in the current biennium and $154 million in FY 2022-23. This is largely because fewer students than previously expected are enrolled in public schools, likely due to families either delaying their children’s start in kindergarten, or opting for homeschool or private school options during the pandemic. As with health care services, forecasters expect the number of pupils to increase over time post-pandemic. 

    The forecast isn’t a measure of whether we have what we need to respond to the pandemic and build a more equitable recovery

    It’s important to remember exactly what the forecast is telling us – and what it doesn’t. The forecast projects surpluses or deficits based off of the state’s current budget commitments. And when we’re looking into the next and future budget cycle, the official surplus or deficit projections don’t include what it would cost for most of our current services to keep up with the cost of inflation, changes in caseloads, or other measures of need. The exceptions are called “forecasted” programs, like the education funding formula that grows with the student population (but not the inflationary costs of serving them) and certain health care programs. Adding in an estimate of inflation to the spending side means a $2.6 billion shortfall in FY 2022-23 and $3.5 billion in FY 2024-25.  

    The November forecast is largely based on the budget that policymakers passed in May 2019, which was a pre-pandemic era where we couldn’t imagine that we’d see record-breaking unemployment claims and economic hardship, all while making some radical shifts in our lives to contain the spread of a deadly virus. But even before the pandemic, the state wasn’t fully investing in what is needed for everyone to thrive. Minnesota was confronting waiting lists for child care assistance, hundreds of thousands of Minnesotans without health insurance, and incredible gaps in opportunity and economic well-being based on whether people were Black, Brown, or white. 

    What this all means for what comes next 

    Our deep dive into the forecast shows us that Minnesota faces a serious revenue shortfall, even after taking into account some of the improvements in the state’s economic and budget picture since May. Some of these improvements reflect positive policy action – like the federal government increasing its share of funding and making sure Minnesotans can continue to afford health care. Some of the improvement in the numbers reflect a better understanding of the economic impact of COVID and the way that hardship is falling especially on those with the least resources to get through. And finally, we are reminded that the measured revenue shortfalls don’t take into account the real impact of inflation, or the need to take more action to bring the pandemic under control and secure the health and economic well-being of all Minnesotans. 

    What it adds up to for us is that the state clearly needs more revenues to respond to the great challenges communities all across our state are facing. It makes sense to enact progressive tax increases that ask those who are doing well in today’s economy to contribute more toward making the investments so that all are able to seek the health care they need, so our elders are cared for with dignity, so our children can see their futures in the eyes of their teachers, and all of our neighbors feel safe as they live and work in their communities. 

    Through deliberate choices, we can ensure that all of us, including Black, Indigenous, and people of color (BIPOC) Minnesotans, share in our state’s abundance. 
  • November forecast notes challenges but Minnesota can draw on resources so we can care for each other

    by Clark Goldenrod | Dec 01, 2020
    While new state budget figures are improved over earlier projections, the forecast also reminds us that many Minnesota workers and families are still struggling, and that this recession is hitting hardest those with the least resources to get through it.  

    For this budget cycle, the forecast projects a small state budget surplus, and structural budget shortfalls in the next two budget cycles.  

    Today’s forecast highlights that improved state revenue figures are not necessarily tied to better well-being for everyday Minnesotans. This fall, more than 230,000 Minnesota adults reported that their household didn’t have enough to eat; more than 140,000 said they were not caught up on paying their rent; and 1 in 4 Minnesotans said they had difficulty covering usual household expenses. And because of longstanding structural inequities, our Black and brown neighbors are being disproportionately harmed by the virus and its economic impact.  

    In a year with many surprises, we received one more: Minnesota Management and Budget only released the executive summary of the forecast today. Here’s our initial take on the numbers, before we get the full forecast later this week.  

    1. The state is projecting a $636 million positive balance for the FY 2020-21 budget cycle, which ends on June 30, 2021. That’s largely measured against the budget passed in 2019, which does not include the costs of needed actions to respond to the pandemic and recession. 

    2. The forecast predicts a $1.3 billion shortfall for FY 2022-23, which grows to $2.6 billion when including what it would take for most current public services to keep up with inflation.   

    3. The forecast gives us our very first look at FY 2024-25. Here forecasters predict a structural deficit of $552 million, which is $3.5 billion when including inflation.  

    4. The national economy is still expected to see an overall 3.6 percent decline this year. Forecasters project that the economy will start to grow starting next year, with moderate annual growth ranging from 2.5 to 3.1 percent.   
    national GDP growth in November forecast

    5. Unemployment during this economic downturn has disproportionately impacted lower-wage workers – more than half of all initial unemployment claims since mid-March were from workers in lower-paid occupations.  

    6. Minnesota Management and Budget acknowledges the substantial uncertainty inherent in this forecast. Several factors could impact the actual performance of the national economy and the state budget numbers, including the path of COVID-19; the timing of widespread availability of a vaccine; the survival of businesses; and any further action from the federal government to provide economic support to individuals and families, and states, local governments, and tribal governments.  

    One factor underlying today’s improved state budget numbers is the fact that smart federal and state policy decisions have blunted or delayed some of the worst economic impacts of the pandemic. But many of these actions have expired or will expire soon if additional steps aren’t taken. 

    State policymakers are considering taking action this month to address some of the economic disruptions due to the latest efforts to bring the coronavirus under control. Policymakers will also need to address the pandemic including vaccine rollout, reckon with the racial disparities the pandemic has laid bare, and build a stronger future for all us when they set the state’s next two-year budget in the 2021 Legislative Session. They will also need to address the substantial revenue shortfall as they do so. 

    Fortunately, Minnesota has resources at the federal and state levels that we can turn to address pressing needs in the weeks and months ahead. 
    • Congress should act quickly with another round of robust economic supports for everyday working people, and to states, local governments, and tribal governments. 
    • Minnesota’s budget reserve has given the state time to take thoughtful action, and could create a buffer against uncertainty as well as support further actions needed to meet Minnesotans’ needs and protect essential services. 
    • Policymakers could also raise revenues from those still doing well in this economy – wealthy Minnesotans and profitable corporations could shoulder more of the responsibility of funding essential services and building for a more equitable recovery.  
    Minnesota policymakers have a big job ahead of them, but thankfully we have tools that better ensure they’re up to the task. 

    Want to learn more? You can also check out our deep dive on the November budget and economic forecast. 
  • Economic update shows COVID-19’s impact, need for federal action

    by Clark Goldenrod | Oct 15, 2020
    COVID-19 is still a major threat to the country’s health, economy, and public services we all count on. The state of Minnesota’s recent October Revenue and Economic Update offered a better picture compared to the May budget projection, but some of that improvement is dependent on federal policymakers quickly taking action on needed economic support for struggling families

    Some of the top takeaways from the Update include: 
    1. The economic picture has somewhat improved … but there’s a big “if”. The economic forecasters now predict a 3.5 percent reduction in the nation’s GDP in 2020, compared to a 5.4 percent drop projected a few months ago. That projection is based on the assumption that Congress will enact COVID-19 relief/economic stimulus legislation that takes effect this year (more about that below). While forecasters still expect economic growth to resume in 2021, they’ve significantly lowered that projection to only 3.7 percent growth next year, much weaker growth than in earlier projections. 

    national GDP growth in October economic update

    2. State revenues to-date came in higher compared to the May budget projection. Revenues for July to September this year came in $593 million – 12.7 percent -- higher than the earlier projection. Some of this higher-than-expected revenue is likely due to timing shifts in income tax payments. Sales taxes were the largest contributor to the increased revenues and seem to reflect actual higher sales than expected, although sales tax revenues are still 3.8 percent lower than a year ago. Corporate tax revenues were both higher than the May projection and 16.8 percent higher than a year ago. While these higher revenues are good news, they are not enough to reverse the huge drop in state revenues that contributed to the $2.4 billion state budget shortfall for FY 2020-21 estimated in May.

    3. Unemployment is expected to remain high. In September, the national unemployment rate was 7.9 percent, down from the peak of 14.7 percent in April. IHS, the state’s economic forecasters, expect unemployment to remain above 8 percent until late in the year, and don’t expect it to return to pre-COVID levels until 2024. The report notes that while the unemployment rate has declined, it doesn’t capture those who have left the labor force during the pandemic – for example, workers who have stopped looking for work right now. The labor force participation rate is about 2 percentage points lower than it was a year ago. 

    4. Forecasters are only somewhat confident in their projections. The nation’s economic performance is dependent on the severity of the pandemic and the effectiveness of efforts to bring it under control. Uncertainty about the course of the pandemic is reflected in forecasters’ uncertainty about their projections. They assign a 50 percent chance that their baseline economic scenario is correct, and give a 30 percent chance for a more pessimistic scenario that includes an increase in COVID-19 cases and a slower recovery. They assign a 20 percent probability to a more optimistic scenario in which the impact of COVID-19 is less severe.

    This latest economic update demonstrates the ongoing need for policymakers to respond to the nation’s health, economic, and state budget crises. Importantly, the improved economic picture is contingent in part upon federal policymakers funding emergency unemployment supports through December and sending another round of stimulus checks. However, the timeline for Congress and the White House to reach an agreement for a much-needed federal COVID-19 stimulus bill is unclear, and continued delay is making the economic picture much harsher, leaving millions of Americans and their families without the economic supports they need right now and delaying the recovery.  

    Additionally, failure to act quickly at the federal level means that state, local, and tribal governments are not receiving the financial supports they need to ensure that Minnesotans can stay healthy and keep a roof over their head. The state’s July economic update noted the economic drag created by state and local government budget cuts, adding, “Without additional federal support, state and local governments face substantial revenue shortfalls in the coming fiscal years.”  
     
    This is a time that truly requires policymakers to draw on the resources needed, including judicious use of the budget reserve and raising state revenues. The latest state economic update underscores that additional federal supports are a crucial piece for both individuals and families and state and local governments having what they need to weather this crisis. 
  • Budget reserve is one tool to put people first during tough times

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

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

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

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

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

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

    by Betsy Hammer | Oct 01, 2020

    Fresh pencils for back to school, shorter days, bright red maples – these are a few of the classic harbingers of fall. Here at the Minnesota Budget Project, we observe another: instructions to state agencies as the executive branch starts the process of preparing the governor's budget proposal. 

    The process to prepare Governor Tim Walz's FY 2022-23 Minnesota state budget proposal is especially challenging for many reasons. First, the state is facing budget shortfalls as a result of the pandemic and economic downturn: $2.4 billion for the current FY 2020-21 biennium and $4.7 billion in FY 2022-23. Legally, Walz is required to prepare a proposal that brings the state budget back into balance. (More about how we encourage advocates to think about the state’s budget debate in a moment.) 

    Further, the budget landscape for FY 2022-23 will be impacted by decisions the administration makes about addressing the FY 2020-21 budget shortfall – for example, whether it is largely resolved by drawing on the budget reserve, and any other steps they may take to respond to the ongoing coronavirus pandemic. 

    In addition, there’s a great deal of uncertainty that will shape the landscape, including: 

    • Will the state get additional COVID-19 relief funding from the federal government? If we do, when will it come and what could it cover? Though it was anticipated that the federal government would have by now provided additional COVID-19 relief and economic stimulus legislation, those negotiations have not resulted in agreement and any action might not occur until early 2021. 

    • What are the outcomes of the state legislative elections in November?  

    Amid these uncertainties, the governor, the state’s fiscal agency Minnesota Management and Budget (MMB), and all state agencies are hard at work to develop Walz’s proposal for the state’s next two-year budget. Currently, state agencies are preparing a menu of budget options for the governor to consider, which happens during the confidential budget development process. Agencies are asked to describe their priorities, including a review and prioritization of current activities, and develop options to save money, particularly in the state’s General Fund. Agencies can make requests for new funding in some limited cases, after conversations with the governor’s office and MMB.  

    After the state’s November budget and economic forecast is released at the beginning of December, the administration will have another very important piece of the budgetary puzzle: updated information about projected revenues and spending under current budget commitments, which they will use to make decisions about what will go in the governor’s budget proposal.  

    The executive branch review and analysis will culminate with the governor’s budget proposal released no later than January 26, 2021, as required by state law.  

    That’s just the start of the budget-setting process. Next, the Legislature takes up the baton to work through its role in developing and passing the state’s budget. Often that budget work starts in earnest after the February forecast is released.  

    What does this mean for the 2021 Legislative Session and budget debate? 

    We’ve been hearing from advocates thinking ahead to 2021 about how to balance the reality of the state’s budget shortfall with the conviction that this is a moment for policymakers to act boldly to tackle the public health, economic, and racial equity challenges facing our state.

    We all must continue to lift up what’s needed for Minnesotans to be healthy, safe, and financially secure. We must talk about the essential role that schools, health care, affordable housing, and other public services play in building thriving communities – and why we must change the ways we’ve fallen short, especially for our Indigenous neighbors and communities of color. 

    We all can emphasize what’s needed while still taking the budget shortfall seriously. The way to do that is by calling on policymakers to draw on the resources needed: the state’s budget reserve, robust federal aid to states, and raising state revenues – particularly by asking those doing well, like profitable corporations and the wealthy, to shoulder more of the responsibility of funding essential public investments to secure the health and well-being of all Minnesotans. 

  • Minnesota expecting continued revenue shortfalls; time for strong federal action

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

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

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

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

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

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

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

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

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

    by Betsy Hammer | Aug 03, 2020

    What does a global pandemic plus a severe economic recession equal? More people who need affordable health care. We’re seeing data that clearly shows climbing numbers of Minnesotans needing some help to afford care while we’re also seeing massive state revenue shortfalls as a result of the pandemic’s economic disruption. This presents a serious mismatch of needs and resources. An increase to federal Medicaid funding is needed to make sure people can get the health care they need, when they need it. 

    Here in Minnesota, the number of people enrolling in Medicaid managed care increased 13.6 percent between February and July 2020. That’s nearly 124,000 more Minnesota friends and neighbors who have turned to Medical Assistance (Minnesota’s name for Medicaid) for health care during these difficult times.  

    Medicaid is working the way it is supposed to – expanding as the economy falters, since folks lose their jobs and their incomes fall low enough to qualify for assistance. The very fact that we are living through a global pandemic underscores the need for maintaining access to medical care.  

    At the same time, state budgets are facing dramatic revenue losses as a result of the recession. In Minnesota, we face a more than $2 billion shortfall in the current state budget cycle and a much larger $4.7 billion shortfall in the next. Because they have to balance their budgets, in a recession, states face the double-whammy of more people needing a helping hand at the same time that they have fewer resources. 

    The best tool to tackle this conundrum? As it has in the past, the federal government should shoulder more of the responsibility for funding essential services and preventing the further job loss and drag on the economy that state budget cuts would create. One way it does that is through increasing the FMAP -- a wonky but incredible piece of policy (click here for a recent explainer). The FMAP, or Federal Assistance Matching Percentage, is the federal government’s share of funding for Medicaid; boosting that rate is a tried-and-true approach to protecting access to essential health care and avoiding painful budget cuts.

    In March, the federal Families First Act included a 6.2 percent increase in the FMAP, which is a great start but well below the kinds of FMAP increases implemented during the Great Recession. We need a larger boost to the federal share of Medicaid funding, and the boosted FMAP rate must last the full duration of the economic downturn; folks will continue to need Medicaid as long as unemployment is high and jobs with benefits are scarce.  

    The alternatives to adequate federal Medicaid funding are bad outcomes that make it harder for people to get the care they need and for health care providers to serve their communities. Some states with more immediate budget-balancing requirements than Minnesota saw that recent FMAP boost did not go far enough; now, these states have implemented harmful cuts to Medicaid, making it harder for people to qualify, including cutting provider reimbursements, reversing planned coverage improvements, and furloughing workers who help connect people to health care coverage.

    As more Minnesotans turn to Medical Assistance, it’s clear that the system is working as it should: people who lose their incomes during an economic downturn are able to afford medical care to keep themselves and their communities healthy. It’s time for the federal government to step up its support of Medicaid by increasing the FMAP so that states can continue to make affordable health care work for all who need it, while protecting other essential state services.

  • July economic update shows state will need all the tools in the toolbox

    by Clark Goldenrod | Jul 14, 2020
    We’ve gotten another sobering look at the economic and budget impacts of the coronavirus in the state’s July Revenue and Economic Update. The quarterly report from Minnesota Management and Budget (MMB) shows that projections for the national economy have gotten even worse. While state revenues have come in a bit ahead of what was predicted in May, the state is still on track for a more than $2 billion budget shortfall for the current budget cycle.

    These numbers underscore how the pandemic continues to harm Minnesotans’ health, safety, and economic well-being, and why we need bold action to address those priorities and build a stronger recovery.

    Additional federal aid to states, local governments, and tribal governments will be an essential part of that picture – as all these levels of government experience the double whammy of needing to meet the pressing needs of their communities at the same time that their revenues are dropping. State-level policymakers also have a role to ensure Minnesota has the resources it needs for us to take care of each other.  

    Some of the top takeaways from the Update include:
    1. The economic picture has gotten even worse since April. The economic forecasters now predict a 6.1 percent reduction in the nation’s GDP in 2020, compared to 5.4 percent projected a few months ago. And while the forecasters expect economic growth to resume in 2021, they’ve significantly lowered that projection to only 3.7 percent growth next year.  

    national GDP growth in July economic update

    2. Revenues to date came in roughly on track compared to the May budget projection. Revenues for FY 2020 came in $168 million - or just 0.8 percent higher than projected earlier.  While this is good news, there’s still a huge revenue drop compared to the February Forecast, and the state faces a significant shortfall in this budget cycle.  

    3. Unemployment is expected to remain high. In June, the national unemployment rate was 11.1 percent. IHS, the state’s economic forecasters, expect unemployment to remain above 8 percent through the rest of the year, and don’t expect it to return to pre-COVID levels until 2024. This information is slightly better than expected, but the report includes an important caveat – these monthly jobs numbers were collected before the recent spike in COVID cases in several states, so may prove to be too optimistic. 

    4. Forecasters note that their projections still “remain highly uncertain.” Since any economic projections are dependent on the severity of the pandemic and efforts to bring it under control, they have high levels of uncertainty. The forecasters assign a 50 percent chance that their baseline economic scenario is correct, and give a 30 percent chance for a more pessimistic scenario that includes an even deeper recession and a slower recovery. They assign a 20 percent probability to a more optimistic scenario in which the impact of COVID is less severe.

    These projections include the anticipated impact of the CARES Act and other COVID and economic stimulus measures already taken by Congress. But the update underlines the importance of further federal action. Part of the reason for the worsening economic projections is the drag of state and local government budget cuts, and the update notes that, “Without additional federal support, state and local governments face substantial revenue shortfalls in the coming fiscal years.” 

    This is a time that will take all the tools in our toolbox so that everyday Minnesotans can weather this health and economic crisis, and to build a stronger and more equitable recovery. Additional federal funding for state and local governments, judicious use of the state’s budget reserve, and fair state revenues are three key tools to get us through.

    Federal policymakers are developing their next round of COVID response legislation, and additional aid to state and local governments is an essential piece of ensuring Minnesotans can stay healthy, and keep a roof over their heads and food on the table. Boosting federal aid to the states has a strong economic boost, ensures that key public services can continue, and keeps teachers and other critical public employees on the job. The Center on Budget and Policy Priorities estimates that states are seeing deeper state budget shortfalls than during the Great Recession, and their calculations don’t even take into account the costs of responding to the pandemic. 

    The federal government should enact aid to states, tribal governments, and localities as outlined in the HEROES Act passed by the U.S. House earlier this summer, including both $540 billion in direct grants and a boost to the federal share funding for health care through Medicaid. Under the direct grants portion of this bill, Minnesota could receive about $8 billion over the next two years.  

    Another tool Minnesota can use to meet the moment’s pressing needs is its strong budget reserve, which has been built up over the past several years to prepare for a time of economic crisis. 

    Fair state revenues also need to be part of the solution. State revenues are dropping, but the current crisis is not impacting all businesses and people equally. It makes sense to ask those who have not been hard hit – profitable corporations and high-income people – to shoulder more responsibility for funding the essential investments that we need to make to help us all get through.
  • May budget report reveals the need to support everyday folks

    by Clark Goldenrod | May 05, 2020
    Today’s May 2020 Interim Budget Projection demonstrates how the current health and economic crisis effecting Minnesotans’ daily lives has implications for the state’s budget as well. The report, out today from Minnesota Management and Budget, projects a $2.4 billion deficit for the current state budget cycle.  

    The economic numbers that drive this budget update also underscore why Minnesota policymakers must continue to take substantial action to meet the public health and economic security needs of everyday Minnesotans, and draw on the resources available to do so. 

    Here are some of the key figures in today’s budget projections: 
    1. The state is expecting a $2.4 billion deficit for FY 2020-21. That’s almost a $4 billion drop from the positive balance in the February forecast just a few months ago.
    2. This change is largely due to significantly reduced anticipated revenues. The state expects to collect $3.6 billion less in the current biennium than projected in February. Declines are expected in all major revenue sources: individual income, sales, and corporate taxes.  
    3. A relatively smaller net increase in state spending of $391 million is expected. The new spending number is based on $550 million appropriated in the legislative session so far, and updated estimates for Health and Human Services, since that’s the budget area most immediately impacted by coronavirus. This figure includes the positive effect of recent federal increase in funding for Medicaid. Without that federal action, the state’s share of spending would have been much higher and there would be a larger deficit.  
    Today’s budget projection was built on the same economic information we saw in the April economic update. The forecasters predict a 5.4 percent contraction in the national economy this year. They expect to see the economy start to grow again in the last quarter of 2020 and then more strongly in 2021, but that doesn’t mean we’ll be back to where we would be if not for the pandemic. 

    There’s a much higher level of uncertainty in these numbers than in most forecasts, many of them unique to the time we’re in, including the path of the pandemic and what additional decisions federal policymakers will make about providing aid to states and local governments.  

    These numbers will guide the decisions that policymakers make in the remaining weeks of the legislative session, and the months beyond. They remind us of how many of our neighbors are struggling, and the importance of taking swift action to reduce the hardships that Minnesotans and their families are facing as a result of the pandemic, and to start building for the economic recovery.  

    If we can find any good news today though, it’s that Minnesota has resources to draw on to ensure everyone in our state is healthy, safe, and financially secure. Federal dollars have an important role to play, and it's essential that federal policymakers do more. Minnesota should tap into the strong budget reserve that’s been built up for times like these. This economic crisis will not be over quickly, and fair taxation should be part of the solution as well. Minnesota can’t afford to pass new tax cuts; instead, those still doing well – profitable corporations and the wealthy – should shoulder more of the responsibility of funding the essential steps to ensure the health and well-being of our neighbors, and to support the recovery. 
  • Increased Medicaid funding to states protects health care, critical services

    by Betsy Hammer | May 04, 2020

    It’s a tried-and-true approach during times of crisis 

    The COVID-19 pandemic is requiring a range of policy responses to ensure people receive necessary health care and economic support. Increased federal Medicaid funding is a significant tool in the toolbox to make sure Minnesotans have the health care coverage that’s so needed in this pandemic, and also has the additional benefit of protecting other essential state services that Minnesotans count on.

    While they have taken some preliminary steps, federal decision-makers should further boost the Medicaid dollars it sends to states, make that increase last until the economy recovers, and maintain strong requirements to protect health care coverage.

    Let’s take a look at why increasing what we wonks call the “FMAP” is so important.

    Over one million Minnesotans get access to the health care they need, when they need it, thanks to affordable health coverage options like Medicaid and MinnesotaCare. During the current global pandemic, access to health care is essential to take care of our Minnesota neighbors.

    Ensuring that everyone has affordable access to COVID-19 testing and treatment is a critical part of addressing this public health threat. Medicaid is an important source of health care coverage for those most at risk to the worst outcomes to COVID-19, including seniors and people living with severe disabilities, and for those working at essential but lower-paying jobs.

    Eligibility for affordable health options is based on people’s incomes, so more people qualify for them during periods of economic strife as folks face job losses or reduced hours. And there are greater demands on these options when there are greater health care needs, like we’re seeing right now.

    States and the federal government share responsibility for funding Medicaid. The federal government matches a certain percent of state Medicaid spending through a mechanism called the Federal Medical Assistance Percentage, or FMAP.

    In March, Congress passed legislation that expanded the FMAP by 6.2 percent through the end of the public health emergency. Minnesota is projected to receive an additional $750 million in FMAP as a result.

    This is an important step in the right direction, but it’s not sufficient. It’s well below what was provided during the Great Recession and much less than requested by the bipartisan National Governors Association.

    Congress must act to further increase the FMAP rate and extend the boosted rates for as long as unemployment is high. Otherwise, many of our neighbors are in danger of losing their health coverage if they lose their jobs. Congress also must keep in place “maintenance of effort” rules so that states can’t restrict eligibility or terminate health care coverage.

    The economic disruption creates another threat to Minnesotans’ health and well-being. States across the country are facing substantial revenue shortfalls. Current estimates are that state budget shortfalls as a result of the pandemic’s economic fallout could be as much as $650 billion over three years.

    That points to the second important reason Congress must act swiftly to increase the FMAP. Because of the significant role that Medicaid plays in state budgets, the federal government has boosted the Medicaid FMAP in past economic downturns to provide fiscal aid to states.

    Since the state share of Medicaid funding makes up about 20 percent of Minnesota’s general fund spending, an increased FMAP can also free up state dollars for education, income supports, and other essential services that Minnesotans count on.

    Unfortunately, we’ve also seen that when states don’t receive sufficient federal support in tough times, they may increase hardships and create a further drag on the economy by laying off teachers and other workers, cut economic supports that their residents need more than ever, and reduce funding for schools and universities. States also put up barriers to getting and keeping Medicaid coverage. The impact of these choices from the last recession reverberate even today.

    Our current health and economic situation calls for the maximum response to help people stay safe and healthy during the COVID-19 pandemic and accompanying economic storm. FMAP is one of the crucially important tools the federal government must use to partner with states. It will help ensure that Minnesotans’ health, safety, and financial needs are met in this crisis, and to set the groundwork for a stronger economic recovery.

    Add your voice to this debate. Contact your Congressional representatives in support of additional Medicaid funding.

    And if you want to get into the weeds...

    FMAP rates are based on the average personal income in a state. Minnesota’s base FMAP is 50 percent, within the lowest FMAP tier in the country. FMAP rates can also vary within a state based on types of spending; for example, generally, spending to cover folks included in the Affordable Care Act’s Medicaid expansion gets a higher matching rate from the federal government.

    Minnesota spends about $5 billion per year on Medicaid from the state’s general fund, with the federal government paying about $8 billion and much smaller amounts coming from other sources.

  • April economic changes bring May budget projections

    by Betsy Hammer | Apr 29, 2020

    The novel coronavirus pandemic is having a significant effect on Minnesotans' physical and mental health of Minnesotans. Unprecedented businesses closures and job losses as a result of the pandemic are having real impacts on Minnesotans and their pocketbooks. Those financial implications will also echo in the state government’s financial health.

    We’ve started to see evidence of this impact trickling in, as we reported on the state’s April economic update, but the magnitude of the impact to state finances has also inspired another unprecedented step: a new state budget projection expected to come the week of May 4. The economic data from the April quarterly update will be used as the working scenario to produce the May report.

    This projection will inform the crucial work of state policymakers to ensure that Minnesotans have the health care and economic supports they need to get by, and to lay the groundwork for a stronger Minnesota when we come through the other side.

    A May budget projection is a new step in the long-established schedule of state forecasts and economic updates. It will not be a full state budget forecast like we typically see in November and February. Minnesota Management and Budget (MMB) will also continue releasing their other regularly-scheduled reports, like end-of-session fund balances, quarterly economic updates, and monthly revenue memos.

    Since this is a new tool, we are not exactly sure what it’ll look like – but here’s what we’re hearing:

    • The projection will be for the current FY 2020-21 biennium only. Typically, state budget forecasts include a peek into the future biennium, but uncertainty is too high for that type of estimation right now.
    • The data available to make the projection are much more uncertain than the state normally uses. The state’s economic forecasters give less than a 50 percent chance that the economic scenario that will underlie the projections is correct, and timing delays mean the revenue data the state has to work with has less predictive power than usual.
    • The projection will cover the state’s general fund, Health Care Access Fund (HCAF), legacy, and transportation funds.
    • It may include some information on the important federal funds that are coming to the state for COVID response, health care, child care, and other essential state services. However, federal funds don’t go into the state’s general fund - so they aren’t part of the calculations for the most commonly-heard state budget figure, the balance in the general fund.
    • The projections will include updated information on forecasted services in the Department of Human Services; “forecasted” programs are those that by law automatically change in response to things like the number of people who qualify for services.
    • Revenue updates will focus on the largest state revenue streams, the revenue streams most sensitive to economic downturns, and/or where experts have good data to make new estimates. We have heard this will include income, sales, corporate, alcohol, lawful gambling, and transportation taxes.

    Keep an eye on our blog and social media channels for continued updates as we work through this tumultuous time. 

  • Minnesota’s April economic update

    by Clark Goldenrod | Apr 14, 2020

    It's a bigger deal than usual, but doesn’t yet have all the answers


    The April Revenue and Economic Update is a first look at the economic and fiscal impacts of the coronavirus crisis in Minnesota. The quarterly report from Minnesota Management and Budget (MMB) shows that state revenues have dropped considerably and the national economy has likely fallen into recession. 

    While the Update doesn’t give us the full picture yet, we see every day the importance of pulling together to ensure all our neighbors can get the health care they need to keep themselves and their communities safe, and the supports that workers and families need to get by. It’s going to take some additional resources – including from the federal government – to make it through and set the groundwork for a stronger Minnesota.

    Some of the top takeaways from the Update include:
    1. The near-term economic picture is not good. The economic forecasters have dramatically changed their national GDP projections, replacing the 2.1 percent growth in 2020 predicted in February to a 5.4 percent contraction in the new Update. They predict growth to resume, with 6.3 percent growth expected in 2021. The state’s economist cautions, however, that doesn’t mean getting back to where we would be if not for the pandemic. These projections include the anticipated impact of the CARES Act and other measures already taken by Congress.
      national gdp growth from april 2020 economic update
    2. State revenues are coming in below projections, but since there’s a lag in data, we’re not yet seeing the full force of the coronavirus’s impact. State revenues for February and March came in $103 million below projections; that’s 3.8 percent less than in the February 2020 Economic Forecast. The decline in revenues is primarily due to income tax revenues for those two months coming in 9 percent below projections, and we can expect revenues from income, sales, and corporate taxes to drop in the future.
    3.  Unemployment is expected to rise. While the monthly unemployment numbers don’t yet reflect our country’s rapidly changing economic situation, the forecasters expect national unemployment to reach a high of 10.3 percent late this year. Since mid-March, nearly 440,000 Minnesotans have applied for unemployment insurance.
    4. Forecasters note that their projections “remain highly uncertain.” The forecasters assign only a 45 percent chance that their baseline forecast is correct and give a 35 percent chance for a more pessimistic scenario that includes an even deeper recession. They only assign a 20 percent probability to a more optimistic scenario with a faster economic recovery. They also note that there is a wide variation among forecasters in their current economic projections, so we should not be surprised if these estimates change over time.
    This Update confirms that the fiscal impact of the public health pandemic is starting to hit the state budget. The situation with coronavirus is unprecedented and changing daily, and much of the impact isn’t yet showing up in the data. With many tax payments delayed to give breathing room for individuals, families, and businesses during this uncertain time, it’s harder for the state to predict its future revenues based on the data currently coming in. It will be a while before we see the full impact of the coronavirus and the measures taken to mitigate its spread. 

    Unlike the state’s economic and budget forecasts, the economic update does not include information on changes in expenditures. For example, it does not calculate the increased needs in our communities for things like health care and food assistance. 

    Because the situation has changed so much since the February Forecast was released, MMB announced they will produce a more comprehensive budget projection in early May to inform decisions through the remainder of the legislative session. 

    MMB recently made some rough calculations and found a recession the size of the Great Recession would produce a $3 billion state revenue loss. Some preliminary indicators suggest the recession that coronavirus is bringing about could be worse.

    Because states have to balance their budgets, they face the double whammy in an economic downturn that their revenues drop at the same time that more of their residents are needing some support to get by. Minnesota’s robust budget reserve will be an important tool to draw on during these tough times. The state will also need to shore up its revenue streams – and in the very near term, it should avoid losing revenues by conforming to new federal tax breaks for business losses that occurred in years past.  

    Federal funding also plays an essential role in ensuring key public services can continue, and to prevent the further drag on the economy that would be caused by cuts in services or laying off teachers and other crucial public employees. While some action has been taken, the federal government must act quickly to provide additional flexibility and funding to states, and blunt the impact of the coming recession. 
     
  • Positive budget surplus is coupled with caution

    by Clark Goldenrod | Feb 27, 2020

    Minnesota's positive budget balance coupled with continued modest economic growth give us short-term good news, according to today's release of the February Budget and Economic Forecast by Minnesota Management and Budget. But the budget outlook also gives reasons for caution, with only a small structural balance in the next budget cycle before accounting for inflation and slowing economic growth in the future.

    1. Today’s February forecast showed the state is projecting a $1.5 billion positive balance for the remainder of the FY 2020-21 two-year budget cycle. That's an improvement of $181 million over the November forecast
    2. The forecast predicts a $465 million structural balance for FY 2022-23. That means that the state is expected to bring in $465 million more in revenues than it will spend in the next biennium; this measure doesn't include any money carried forward from the prior biennium. However, that number also doesn’t include what it would take for most current public services to keep up with inflation. When the impact of inflation is accounted for, the balance in FY 2022-23 turns into a deficit of $654 million.
    3. The economy is expected to continue growing over the next several years at rates very similar to those projected in the November forecast. However, that growth is slow, which makes the economy less resilient and increases the likelihood that any economic challenges could tip us into a recession.  
      US gdp from 2017 - 2023 in February 2020 forecast
    4. The forecasters are fairly confident in their projections. They give a 65 percent chance to their baseline economic scenario. They also give a 25 percent chance to a pessimistic scenario in which the U.S. experiences a short recession starting in 2021, and a 10 percent chance to a more optimistic scenario. As always, the forecasters name the risks to their projections, which were put together in early February. The forecasters noted that as of February 21, the impact of the coronavirus is expected to be "modest in the context of the large U.S. economy," but also that new information is developing daily. 
    Similar to what we saw in the November forecast, the state has short-term good news that cools off in the next budget cycle, and important unknowns about the future. This underscores the opportunity this session for one-time investments toward building prosperity throughout the state, such as in child care and health care. But any action taken this year is essentially a downpayment. To make sustainable investments for the longer term, we'll need to raise more revenues to invest in great schools, safe and thriving communities, and other building blocks of broader prosperity. 

    Today's forecast also illustrates the need for accurate information in the forecast. While the forecast shows a $465 million structural balance in FY 2022-23, that does not take into account the $1.1 billion it would take to keep up with inflationary pressures. Due to a law passed in 2002, the state's economic forecast adjusts state revenues for inflation in the next biennium, but does not do the same for many areas of spending. This week, the House Ways and Means Committee heard House File 150 (Schultz) that would reintroduce including a measure of overall inflation on spending in calculating the state's budget balance. This is a change that would give policymakers, advocates, and the public a clearer understanding of the full impact of budget choices made today. 

    Now that the February forecast is out, Governor Tim Walz will release his supplemental budget proposal sometime next month, and legislators have the numbers they need to start putting their budget proposals together. Stay tuned to our blog to keep up with the latest. 
  • January economic outlook is brighter

    by Clark Goldenrod | Jan 27, 2020

    The recently released January 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. While that growth is expected to taper off over the next few years, this latest report is slightly improved from the November forecast

    Some of the top takeaways from the Update include:

    1. State revenues have come in above projections. Revenues for the last two months of 2019 came in $155 million above projections - 4.2 percent more than in the state’s November 2019 Economic Forecast. This is primarily due to increased corporate tax payments. 

    2. Long-term economic growth is still expected to be low, but somewhat improved over prior estimates. The national economic forecasters have maintained their predictions for national GDP growth for 2019 and 2020 at 2.3 and 2.1 percent respectively. Forecasters predict slowing growth in 2022, although their estimate is 0.1 percentage point higher than November's projections.

    graph showing national economic growth year by year

    3. Unemployment is expected to remain low. Nationally, unemployment was 3.5 percent in November, back to its lowest point since December of 1969. The state's economic consultant expects this rate to continue to drop in 2020, and then start to rise slightly in 2021. 

    4. Forecasters are fairly confident in their projections. The forecasters are more certain about their baseline economic scenario than they were in November. They assign a 65 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 at the end of this year, and a 10 percent probability to a more optimistic scenario.

    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, with slower economic growth and potential for a recession on the horizon, policymakers should prioritize a strong budget reserve to be able to meet Minnesotans' needs in future tough times. The state's budget reserve recently reached its recommended level of $2.4 billion thanks to years of responsibly adding to it. But nearly $500 million is currently slated to be withdrawn from the reserve in July 2021, substantially weakening it. It will be imperative for policymakers to undo this decision. 

     As we've said before, economic growth is not enough to bring about broad prosperity, and many Minnesotans are not sharing in the benefits. The November forecast projected a $1.3 billion state budget surplus for the current biennium. The continued positive budgetary news in the January Update confirms that policymakers have an opportunity to make some one-time investments to build prosperity when the state's legislative session starts just a month from now. They should prioritize our Minnesota neighbors struggling to afford the essentials, such as child care and health care.  Policymakers should advance policies so that more Minnesotans can thrive in today's economy, no matter who they are or where they live. 

  • Minnesota’s November budget forecast offers some near-term good news, while pointing to the need for sustained revenues for investments

    by Clark Goldenrod | Dec 05, 2019

    Minnesota’s budget reserve is strengthened and the state’s budget outlook gives us short-term good news, according to today’s release of the November Budget and Economic Forecast by Minnesota Management and Budget. Even though the Minnesota Budget Project staff are at a conference in DC – we had to take a look. Here are our first takeaways:

    1. Today’s November Budget and Economic forecast showed the state is expecting a $1.3 billion positive balance for the remainder of the FY 2020-21 two-year budget cycle. That’s after $284 million was automatically transferred to strengthen the budget reserve.
    2. The forecast predicts a $220 million structural balance for FY 2022-23. However, that doesn’t take into account what it would take for most current public services to keep up with inflation. When the impact of inflation is accounted for, the balance in FY 2022-23 turns into a deficit of $991 million. These figures provide the most accurate picture of the state’s budget situation – it’s important to understand that the $1.9 billion “available balance” for FY 2022-23 includes the $1.3 billion surplus for FY 2020-21.
    3. With the budgetary outlook worsening significantly in the next biennium, this means that the investments that policymakers can make in Minnesotans this session are largely going to be one-time. They are essentially an opportunity to make a down payment on the investments the state needs to support a prosperous Minnesota.
    4. The economy is expected to continue growing over the next several years, which is good news. However, that growth is slow, which could more easily turn into a recession.

    Today’s forecasted surplus means that Minnesota will have a stronger budget reserve. A strong budget reserve is important to be able to meet Minnesotans’ needs in future tough times. While today’s transfer finally brings the reserve to its recommended level, in the 2019 Legislative Session policymakers unfortunately decided to take out nearly $500 million in July 2021, substantially weakening the reserve, so it is imperative to undo that damage.

    The surplus announced today also means that policymakers have an opportunity to make some investments that build prosperity throughout the state in the upcoming legislative session. They should prioritize our Minnesota neighbors struggling to afford the essentials they need to thrive, such as child care and health care. But after many decades of wage stagnation for many workers and years of under-investment in our communities, there’s still more work to do to sustainably raise the resources needed to invest in great schools, thriving communities, and other building blocks of lasting and shared prosperity for all Minnesotans, no matter who they are or where they live.

  • 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.

Proposals & Outcomes

  • Walz's supplemental budget calls for resources for greater investments

    by Clark Goldenrod, Nan Madden | Apr 15, 2021
    We have called on policymakers to take bold action to respond to the health, economic, and racial justice crises before us. That means making sure Minnesotans can have what they need to get through the ongoing effects of the pandemic and recession, and make structural changes to build a more equitable future.  

    Last month, Governor Tim Walz released an updated budget proposal that describes his approach to these challenges. This proposal responds to the state economic forecast released in late February, which showed an improved state budget picture compared to the November forecast, although state general fund revenues are still down compared to what was anticipated in February 2020. 

    Walz’s revised budget adapts to the new forecast figures by: 
    • Increasing his new general fund investments by $295 million in FY 2022-23 through a combination of revising some original proposals and new initiatives; 
    • Adjusting his revenue-raising plan, which now proposes raising a net of $656 million in general fund revenues in FY 2022-23; and 
    • Restoring the strength of the state’s budget reserve.  

    New proposals to invest in students, families, and workers 

    The largest new investment added in the supplemental budget is in E-12 Education: an additional $68 million in FY 2022-23 for compensatory aid. This aid goes to schools with a higher percentage of students who are eligible for free or reduced-priced meals. This proposal addresses the issue that schools are facing a drop in this aid because the aid is based on the number of qualifying students, but during the pandemic, many families across the state didn’t fill out the appropriate forms even though they may have qualified for assistance.  

    Walz proposes a statewide earned sick and safe time benefit standard for workers. His proposal is very similar to that found in House File 7. Under this proposal, employers must at a minimum allow workers to earn one hour of sick leave for every 30 hours worked to earn up to 48 hours of leave per year. We’ve written before about the benefits of paid leave for workers (particularly low-wage workers and workers of color), businesses, and the economy.     

    The governor also recommends additional economic support for the very low-income families participating in MFIP, the Minnesota Family Investment Program, who disproportionately work in industries with high levels of job loss in the COVID-19 pandemic. The proposal would invest $14 million in FY 2022-23 to provide an annual cost of living adjustment in cash assistance so that these families and children can better meet their basic needs.  

    Walz’s budget proposal would also protect the state’s budget reserve, sometimes called Minnesota’s rainy day fund, which is a crucial tool that the state can use to put Minnesotans first during tough times. The governor’s January budget proposal, which was put forward when the state was facing a projected deficit, would have used $1 billion from the reserve to help fund essential services Minnesotans are counting on. Additionally, due to a decision made in the 2019 Legislative Session, almost $500 million was already scheduled to be withdrawn from the reserve this July. Together, this would have reduced the budget reserve by almost two-thirds. Because of the improved near-term budget outlook, Walz now proposes largely keeping the state’s $2.4 billion reserve whole. 

    Tax changes 

    Walz’s supplemental budget continues to recognize the need to raise revenues to address the pandemic, protect public services Minnesotans count on, and build a more equitable recovery. While the state’s short-term budget picture has improved, more resources are needed to sustainably fund public services and make structural changes that tackle economic, racial, and geographic disparities. Walz’s budget raises a net of $656 million in general revenues in FY 2022-23 and $840 million in FY 2024-25.  

    As in the January proposal, the governor focuses his revenue-raising on those with the most resources, including through a new millionaires’ income tax bracket and an additional tax on large amounts of capital gains. His budget would also raise the state’s corporate income tax rate and make policy changes related to profits earned overseas. 

    The major changes to Walz’s revenue plan compared to January are a new section that addresses how the state would adapt to changes in federal tax law (often called tax conformity), and further boosting the after-tax incomes of lower-income workers and families, who have been hit hardest by the pandemic. It no longer proposes to raise taxes on tobacco products, but continues to propose changes to how vaping products are taxed.   

    His proposal now contains a stronger expansion of the state’s Working Family Tax Credit (WFC). This proposal would increase the size of the tax credits that lower-income workers and families can receive, and make more workers and families eligible – including younger workers. It includes a one-time provision that would allow workers and families to calculate their WFC based on their 2019 or 2020 income – following a similar federal policy change so that those who lost wages or their jobs during this pandemic year don’t see further economic hardship from a reduction in their tax credit. The property tax refund for renters (Renters’ Credit) would be expanded as well. 

    In terms of federal conformity, some of the larger pieces are a proposal for $241 million in tax reductions in FY 2022-23 for profitable businesses that received federal PPP loans, and a $260 million tax reduction for workers who received unemployment insurance benefits. 

    What's next 

    Policymakers need to set the state’s next two-year budget in this legislative session, and with his supplemental budget, Walz has laid out his priorities and approach. We’re also watching for the administration to release plans for use of additional federal dollars that will be coming to the state

    The state’s budget picture has improved, but we know that many Minnesotans are still out of work, struggling to pay the rent and put food on the table. Minnesota must take bold steps to address the pandemic, but we also need to address the ways that past disinvestment made the recession worse for so many, and make real changes to build a more equitable future.  

    Stay tuned to how the budget plans from the Legislature stack up against these goals.  
  • Walz’s proposed budget includes strong and fair revenues

    by Clark Goldenrod, Nan Madden, Betsy Hammer, Abimael Chavez-Hernandez | Jan 27, 2021

    Will invest in Minnesotans’ needs now and the future

    Governor Tim Walz released what he called his “COVID-19 Recovery Budget” in the context of health, economic, and state revenue crises. This budget proposal comes at a time when hundreds of thousands of Minnesotans are facing increased hardship, and there’s a greater spotlight on the barriers to well-being that pre-dated the pandemic. The impact of the recession has been unequal, with many high-income folks and some businesses doing well at the same time that people of color and low-income Minnesotans have borne the brunt of the disease and job loss. Many people are behind on rent, not getting enough to eat, and are still out of work.  

    The governor’s budget makes the largest investments in education, with important steps elsewhere in the budget. He funds these investments, at the same time as largely protecting current services that Minnesotans count on and responding to a $1.3 billion budget shortfall, primarily by drawing $1 billion from the budget reserve and raising $1.6 billion in net additional revenues. 

    We’ll have more details in upcoming blogs, but here’s our initial take.
       
    Governor Walz's FY 2022-23 budget proposal       Net general fund spending changes
    E-12 Education   $664 million 
    Health and Human Services    $167 million 
    Higher Education    $150 million 
    Public Safety and Judiciary   $117 million
    Jobs, Economic Development, and Commerce   $59 million
    State Government and Veterans   $58 million 
    Environment    $33 million 
    Capital Projects and Grants  $21 million 
    Agriculture and Housing    $19 million 
    Transportation   $16 million 
    Total  $1.3 billion

    Education  

    The governor proposes $664 million in additional net funding for education. He would increase funding for school districts through the basic student formula by 1 percent in FY 2022 and 2.5 percent in FY 2023. That’s an increase of $66 per student the first year and another $166 the second year.  

    In addition to per-pupil funding, Walz’s proposal includes several measures intended to advance racial justice in Minnesota within the school system, from ensuring all students learn about Minnesota’s full cultural heritage to additional support for advanced coursework for BIPOC students to supports for teachers of color and Indigenous teachers.  

    The governor’s budget proposal also includes several measures to update the ways schools are funded, including levy simplification and equalization that is intended to better fund schools in communities with low tax bases to meet the needs of their students.  

    The budget also includes several initiatives intended to make up for learning disruptions due to COVID-19, such as funding for hands-on learning and neighborhood programs slated for this summer.  

    Health and Human Services 

    Walz’s proposed budget includes several positive economic supports for those Minnesotans most harmed by the COVID-19 pandemic. Very low-income families participating in MFIP, the Minnesota Family Investment Program, have been disproportionately likely to suffer job loss in the COVID-19 pandemic. Hotel, retail, and restaurant sectors represent the primary occupations for Minnesotans who turn to MFIP for assistance. Under this proposal, about 32,400 families who participate in MFIP would receive a one-time payment of $750 to help them weather these difficult times. 

    Walz’s proposal also includes nearly $48 million in FY 2022-23 and over $85 million in the next biennium for affordable child care. These dollars, primarily from the Child Care Development Fund with a small portion from the state’s General Fund, will be directed towards improving the provider reimbursement rates in the Child Care Assistance Program. This action is necessary to keep Minnesota in compliance with federal requirements to maintain federal funding. Additionally, it helps keep affordable child care available for Minnesota kids, parents, and employers. The proposal also includes $750,000 in one-time funding through DEED for child care economic development grants aimed at expanding the supply of child care, reduce regional shortages, and promote new business development.  

    The governor’s proposal for the Department of Human Services includes implementation of several strategies to create budget savings proposed by the Blue Ribbon Commission, a compromise dating back to the 2019 budget deal that required a $100 million savings in this area of the budget. The proposal also includes administrative streamlining; efforts to address homelessness; mental health and substance abuse services; access to telemedicine; aging and disability services; licensing and background check updates; and improvements to tribal governments’ access to services. Walz’s proposal for the Minnesota Department of Health includes investments aimed at keeping infants and new mothers healthy, protecting Minnesota’s clean water, and protecting the public from hazardous materials. 

    Higher Education 

    The governor’s budget proposal increases funding for higher education by $150 million in FY 2022-23. Minnesota State Colleges and Universities would receive the largest share of this increase, with an additional $64 million to maintain operations, cover pandemic-related expenses, and provide additional supports for students. The University of Minnesota would receive an additional $47 million in FY 2022-23 for operating expenses, and the Office of Higher Education would receive an increase of $35 million for job training and skills-building programs targeted towards Minnesotans who lost work due to COVID-19.   

    In addition, the proposal includes increased funding for financial aid for students through the state grant program. 

    Economic Development and Housing 

    Walz’s budget proposal would establish a paid family and medical leave insurance program that would allow Minnesotans to take up to 12 weeks of paid leave for addressing a serious medical condition, to care for a family member, or to care for a new child. According to the proposal, around 10 percent of Minnesota workers need to take a family or medical leave in any year. This program would be especially important for low-income workers and workers of color who are more likely to lose critical wages when they have to take leave to care for themselves or a family member without pay.  

    The proposal also includes measures to support workers and businesses during COVID-19, including expanding eligibility for unemployment insurance for high school workers. The proposal also includes a Small Business COVID Support Program, which is a loan program for small businesses in industries that were hard hit by COVID-19.  

    The COVID-19 pandemic has exposed gaps in access to broadband as many workers and students have switched to work-from-home and distance-learning. The proposed budget includes a one-time investment of $50 million in FY 2022 to improve access to broadband in unserved and underserved areas of the state.  

    The budget proposal also includes measures to support Minnesotans and their families who are struggling to find housing. It includes $4 million in FY 2022-23 for Minnesotans experiencing homelessness or who are at risk of homelessness through the Family Homeless Prevention and Assistance Program and $4 million for workforce housing through the Challenge program.   

    Taxes and Revenues 

    The governor uses several forms of revenue in order to fund the investments in his budget, as well as respond to pandemic-caused state revenue shortfalls. Some of the larger one-time measures to balance the budget include a $217 million surplus expected at the end of the current budget cycle and $1 billion of the state’s budget reserve, sometimes called the rainy day fund. We’ve advocated for building up that budget reserve when times were good and judiciously using it to support Minnesotans to get through this economic crisis. About $850 million would be left in the budget reserve for possible later use.  

    We’ve described before the real and growing gap between what the state’s current revenue system brings in and what is truly needed for all our communities to thrive. We’ve also noted how this economic downturn has been really uneven in its impact – hitting lower-income folks hard while many of those with greater resources of income and wealth have seen those assets grow further. The governor’s tax plan is also being proposed against the backdrop of a 2017 federal tax bill that provided the largest tax cuts to high-income households and corporations, which they continue to benefit from today. 

    The governor’s budget proposes several revenue increases focused on those with the greatest resources, primarily through: 
    • A new millionaires income tax bracket, with a 10.85 percent rate on taxable income over $1 million for a married couple, which the administration estimates will impact less than 1 percent of the highest-income households; 
    • An additional tax on capital gains and dividend income over $500,000, in part reflecting that this source of income, which is largely earned by high-income households, is taxed at a lower rate at the federal level; 
    • Reversing recent cuts to the estate tax while maintaining current protections for smaller family-owned farms and business;  
    • Raising the state’s corporate income tax rate; and making changes to policies related to profits earned overseas. 
    The budget also uses tax increases to take aim at the harmful health impacts of tobacco and vaping, and especially discourage their use among young people.  

    The governor’s budget also would expand the Working Family Tax Credit, a powerful tool for tax fairness that also boosts the incomes and well-being of more than 300,000 lower-income workers and families in Minnesota. We’re especially pleased that the governor’s budget would end the current practice of excluding otherwise eligible workers and working families who file their taxes with an Individual Taxpayer Identification Number (ITIN), rather than a Social Security Number. Many of those currently excluded are the essential workers we’ve all counted on more than ever during this pandemic. 

    The budget also includes a tax cut targeted at moderate-income households by expanding the size of the state’s lowest income tax bracket. 

    Stay tuned for more analysis as the final FY 2022-23 budget comes together.  
  • Legislature passes supports for Minnesota workers and businesses

    by Clark Goldenrod, Betsy Hammer | Dec 18, 2020
    Minnesota legislators voted to provide much-needed economic supports to workers and businesses in a one-day session earlier this week. As part of continued efforts to contain the spread of COVID, Governor Tim Walz announced additional restrictions on certain businesses in November. The legislation contains measures to help keep impacted workers and businesses afloat during what’s been a difficult year for many, including an extension of unemployment insurance benefits and several mechanisms to get funds to struggling restaurants, bars, theaters, and other businesses.  

    However, as important as these measures are, additional action still is needed to counter the continued economic harm of COVID. This legislation did not include proposals from the governor and House for emergency financial support for the most vulnerable Minnesotans and to expand availability of affordable child care.  

    But first, here’s what passed:  
    • Unemployed workers eligible for unemployment insurance will receive up to a 13-week extension. Without this action, many Minnesota workers would lose their wage-replacement benefits in the upcoming weeks because federal policymakers have failed to extend federal UI.  
    • Businesses and nonprofits that have been substantially impacted by the COVID crisis will receive about $217 million in grants through a few different mechanisms. The Department of Revenue will distribute $88 million in support for businesses like restaurants, bars, distilleries, and gyms. DEED will distribute $14 million to convention centers and movie theaters. The largest component, $115 million, will go to counties to distribute to local businesses and nonprofits. 
    Unfortunately, the legislation did not take additional steps that would allow striving workers and families to pay the bills and get back to work. Items that were part of the negotiations but not the final agreement included:  
    • A $500 one-time emergency payment for extremely low-income families and children participating in the Minnesota Family Investment Program (MFIP). These families face the same economic challenges as others, yet are unlikely to benefit from other policy actions, such as expanded unemployment insurance. This provision would have ensured some of the state’s most struggling families could better afford essentials like rent, food, and diapers. It would be good for our economy too, as the most effective way to provide economic stimulus is to get resources into the hands of those who will quickly spend those dollars. 
    • Policy changes and funding to support critical child care infrastructure. Lack of child care is a top reason for work absences among essential workers, and more than 80 percent of families on the waiting list for affordable child care would be working in essential jobs if they could get care for their kids. Additional funding for affordable child care and continued emergency grants for providers would help keep essential workers in their jobs to keep hospitals, grocery stores, and other critical sectors operating. 
    • Emergency housing assistance grants. Families across the nation and in Minnesota are facing unprecedented levels of hardship, yet the legislation did not provide any new resources for Minnesotans who are struggling to afford basic necessities like housing.
    As policymakers head back to the state’s Capitol in January, they will need to continue to act so that Minnesotans can navigate through this ongoing health and economic crisis.
  • October special session legislation includes first-time efforts for equity in bonding package

    by Clark Goldenrod, Nan Madden | Oct 30, 2020
    Minnesota policymakers passed a long-awaited infrastructure package when they convened on October 12 for their fifth special session of the year. The legislation approved nearly $1.9 billion worth of capital investment projects to support economic growth and improved quality of life in communities across the state, and importantly, includes a set of projects specifically focused on communities of color.  

    While capital investment makes up the bulk of the bill, it also includes some supplemental budget provisions largely aimed at the effects of the pandemic and other recent events, and one major tax cutting provision.  

    This legislation was negotiated against the backdrop of perhaps the biggest health and economic crises of our lifetimes, which have also resulted in large state revenue shortfalls. However, the bill’s tax cuts and some of its fund transfers could add to the state’s challenges in funding essential services in the future.   

    In the current FY 2020-21 budget cycle, the bill has $97 million in new general fund spending and $90 million in tax cuts, which is more than offset by fund transfers, federal dollars, and recognizing some other budget savings. It reduces the state’s general fund budget deficit by $29 million. However, in the next biennium, the bill has $100 million in additional spending and $118 million in tax cuts, and in total adds $247 million to the state’s budget shortfall. 

    General Fund impact of October special session legislation      FY 2020-21       FY 2022-23
    Capital investment projects and bonding debt service      $52 million      $89 million
    Supplemental budget provisions      $45 million      $11 million
    Tax provisions      $90 million      $118 million
    Spending offsets and shifts      -$216 million
         $29 million
    Total      -$29 million      $247 million
     

    Capital Investments/Bonding

    Minnesota policymakers typically pass a major capital investment bill every two years. It’s more commonly called the “bonding bill” because the majority of the capital investment projects are funded by issuing bonds, which spreads the cost of the projects over time.  

    We are especially pleased that two provisions that advance racial equity were included in the bill. 
    • Historic investments in racial equity. The bill takes an important step toward more equitably distributing state funding for capital investment by including $30 million for capital investment projects for organizations led by and serving Black, Indigenous, and people of color (BIPOC) communities. Both Governor Tim Walz and the Minnesota House included such targeted funding in their bonding proposals, recognizing that the process for accessing bonding money can be complicated and perpetuate existing disparities among communities in access to resources.  
    • Equitable hiring practices. The bill sets hiring goals for capital projects funded by general obligation bonds. It requires such projects to follow the same region-specific goals for hiring women and BIPOC workers that other employers that enter into a contract with the state of Minnesota must work toward.  
    Other highlights of the capital investment portion of the bill include: 
    • Critical funding for housing. The bill includes $100 million in projects to create and preserve homes, and $16 million to maintain public housing for low-income Minnesotans.  
    • Transportation investments include a variety of ways that people get around. About $680 million was included for transportation projects across the state. Much of this goes to local roads and bridges and trunk highway improvements. The bill also expands the ways Minnesotans can use buses, bikes, and their feet to get to work, school, and other destinations through provisions including Safe Routes to School; other investments in biking and pedestrian infrastructure; rapid bus lines in the Twin Cities; and funding for Greater Minnesota transit. These provisions have important racial and economic equity implications. People of color are much more likely to rely on public transit, and high-poverty neighborhoods often lack good access to good jobs. Move Minnesota estimates that the rapid bus lines will save transit riders almost one million hours in commuting each year, a real improvement for communities that have typically seen underinvestment. Investments in transit also are an important strategy to counter climate change’s threat to our economy and well-being.  
    • Safe drinking water. The bonding bill includes $269 million for clean drinking water, sewer systems, and other investments in clean water in communities from Austin to Itasca to West St. Paul.  

    Supplemental budget items 

    The special session legislation includes $45 million in supplemental budget provisions for FY 2020-21 and $11 million for FY 2022-23. These include funding for a wage and benefit increase for personal care attendants; services for people living with mental illness, developmental disabilities, and chemical dependency; testing and storage of sexual assault kits; to cover costs of the state response to the civil unrest that followed the killing of George Floyd by Minneapolis police; and for overtime and staffing costs at the Department of Corrections. Some of this funding reverses administrative cuts to the Department of Human Services and the Department of Corrections made this summer after supplemental budget requests were not approved in earlier special sessions.  

    Unfortunately, this legislation did not include proposals considered in earlier special sessions to help folks struggling to get through these challenging times, such as an emergency one-time assistance payment for the very low-income families participating in the Minnesota Family Investment Program during COVID-19.  


    Tax cuts 

    The October special session legislation cuts state tax revenues by $90 million in FY 2020-21 and $118 million in FY 2022-23 from changing tax law to allow businesses to deduct the entire amount of certain capital expenditures in one year, instead of spreading the deduction over the life of the equipment.  

    Big drops in state revenue as a result of the economic downturn is the primary contributor to state budget shortfalls. Minnesota needs to be raising state revenues in order to have the resources to fight the pandemic and address the economic impact of the downturn, but these tax cuts add more than $100 million to the size of the state’s FY 2022-23 revenue shortfall. 


    Fund transfers and budget adjustments 

    The legislation uses several fund transfers and budget adjustments to offset some of the costs of the bill and minimize the near-term impact on the general fund.  

    The largest of these is a $105 million transfer from the state’s Premium Security Plan Account. This account was created to support the state’s “reinsurance” plan to provide payments to health insurance to hold down premiums in the individual insurance market. This account’s largest source of funding was a transfer from the Health Care Access Fund, which was created in legislation to increase access to affordable health care. While there is no immediate negative impact of this fund transfer, it is unfortunate that funds dedicated to affordable health care were reduced at time when it is so clear how essential it is that every one of us can get the health care we need. 

    The bill also recognizes some FY 2020-21 savings resulting from bond refinancing that MMB conducted earlier in the year, and the ability to use federal dollars for certain coronavirus-related expenses, and state Medicaid expenses that otherwise would be funded with state dollars. 
  • Work remains to advance health, safety, and economic security

    by Clark Goldenrod | Jul 02, 2020

    June Special Session ends with plenty left on the table

    Because much urgent work was left on the table at the end of the regular legislative session, this June policymakers were tasked in a special session with responding to the ongoing unprecedented public health crisis and the nation-wide economic downturn.

    A week after the regular session ended, George Floyd was killed at the hands of the Minneapolis Police Department on May 25, which sparked uprisings in Minneapolis and St. Paul, and serious conversations across the state about the future of policing and the urgency to create a state where all feel safe, regardless of race. 

    Unfortunately, the special session ended with only a few positive steps to ensure Minnesotans can be healthy, safe, and get by economically in the near term, and invest in resilience in all communities for the future.

    Governor Tim Walz and the Minnesota House advocated for proposals to advance economic security for Minnesotans striving to make ends meet and respond to the current health crisis, and supported the work of the legislators in the POCI (People of Color and Indigenous) Caucus to reimagine how the state’s policing and justice system works. Unfortunately, the Minnesota Senate set a one-week deadline for the special session and passed more limited legislation. 

    The good news: policymakers passed a few bills

    A win for ongoing access to health care and economic supports

    State and federal pandemic emergency declarations passed in response to the coronavirus provide some essential flexibilities so that Minnesotans can continue to receive health care, housing, food assistance, and other essential services with fewer barriers and paperwork. During the special session, legislators passed House File 105 (Liebling) to extend some of this flexibility, which include things like automatically renewing eligibility and allowing health care services to be delivered through telemedicine. The amount of time these flexible options will stay in place varies based on state and federal requirements. The bill also appropriates some money from the state’s coronavirus response fund for emergency housing.

    We’ll have a deeper dive into the details of this legislation coming soon to a Minnesota Budget Bites blog near you.

    A bare-minimum win: increased child care assistance reimbursement rates

    Minnesota’s child care assistance program, sometimes called CCAP, brings down the costs so that kids get the care that helps them thrive, parents can go to work or school, and employers have the workers they need. 

    However, here in Minnesota the rates the state pays child care providers participating in CCAP are woefully out of date and far below federal minimum requirements, which could lead to financial penalties for the state. House File 41 (Pinto) draws on federal funds to raise those reimbursement rates up to the 25th percentile of market rates, which meets the bottom-rung standard to avoid federal penalties. While rates will still be very low, and problematic for providers who struggle to make their business math work as well as for parents who face limited choices of providers, this is a small and important step toward the investments needed so that all Minnesotans can afford child care that meets their family’s needs. 

    Many urgent issues were left unaddressed

    Policing and justice reforms

    The POCI Caucus called on policymakers to enact a set of policy proposals to change the way justice and policing systems work across the state. These proposals ranged from changing police training methods to investing in community-based mental health services to restoring the right to vote for formerly incarcerated Minnesotans. It’s well documented that Black and Brown people are disproportionately policed, arrested, and incarcerated in Minnesota’s current criminal justice system. 

    Enacting the POCI Caucus package would have been an important and bold first step - among many that will need to be taken at multiple levels of government - toward creating a state where we all can thrive and feel safe, regardless of race, religion, or region. Unfortunately, while the POCI policing legislation was passed by the House and endorsed by the Walz administration, the Senate supported a much more limited package of changes that included a ban on chokeholds but left out many larger structural changes to policing.  

    Economic support for Minnesotans left out of previous COVID legislation 

    Some of the Minnesota families and children most struggling to afford the basics were once again left out. House File 8 (Halverson) would have provided a one-time $500 emergency payment for families participating in the Minnesota Family Investment Program (MFIP). These families face the same economic challenges as others yet are unlikely to benefit from other policy actions, such as expanded unemployment insurance. Despite passing the House and support from the Walz administration, this provision was not enacted in the special session.

    State policymakers also have yet to provide COVID-related economic assistance to those left out of the federal CARES Act. The “economic stimulus payments” paid directly to Americans left out teenagers, young adults, and persons with disabilities whose families claim them as dependents on their taxes, as well as households in which a family member uses an ITIN (Individual Tax Identification Number). House File 10 (Gomez) would have provided funds for Community Action agencies across the state to address the economic hardships of those Minnesotans left out of prior federal stimulus efforts. This bill was heard in the House during the regular session but did not advance during special session. 

    Federal aid to local governments

    The federal CARES Act allocated $1.9 billion to the state of Minnesota to respond to emerging needs due to COVID, and encouraged states to distribute about half of that amount to local governments. Local governments have faced increased costs as they respond to the public health crisis; additional dollars would mean they can meet their residents’ needs while keeping public workers on the job and serving their communities.  

    While the Senate and House reached an agreement of how to allocate this federal funding among different local governments, that legislation did not become law. The Senate did not agree to pass the House version of the legislation, which also included additional measures to address the economic impact of COVID, like supports for veterans, cash assistance for families participating in MFIP, and child care funding.

    The governor will use his executive authority to disburse $841 million of CARES Act funds to local governments. 

    Bonding and infrastructure

    Under normal circumstances, 2020 would have been a “bonding year” in which policymakers’ main focus would be to put together a package of infrastructure projects. While the debate among policymakers about how big the bonding bill should be got much attention, there were also important proposals to advance equity in the process at play. 

    Walz and the House advanced bonding proposals that included provisions to require projects funded by state general obligation bonds to comply with human rights provisions related to gender and race equity in hiring, similar to other state-funded construction projects. They also included funding for capital projects from community-based organizations that are led by and serve communities of color and Native Americans. The governor also included funding to raise awareness about the capital budget process among communities that have historically had less access to bonding.
     

    Equitable rebuilding in the metro area

    The Minnesota House passed a legislative package (called the PROMISE Act) to support equitable rebuilding in the communities most impacted by the damage to businesses and neighborhoods during events following the killing of George Floyd. This package aimed to target investment to those who built those communities in the first place, and avoid the loss of generational wealth and displacement that could happen without intentional investment. The proposals included provisions such as funding to preserve existing businesses and promote growth, tax reductions for impacted properties, rent control for some impacted properties, and the introduction of an 0.125 percent metro-wide sales tax to support redevelopment guided by a BIPOC-led board. 

    What’s next

    Minnesota, like the rest of the nation, faces the same challenges today as we did when the special session started on June 12: protecting and promoting our health in the face of a pandemic; taking measures to confront current economic challenges and lay the groundwork for a stronger recovery; and changing policing and justice to create a state where everyone is safe. 

    The June special session was triggered by a 30-day extension of Walz’s emergency authority. Another special session could be held, perhaps on July 13, triggered by a similar extension. Whether through special session action or executive authority, Minnesota policymakers must take bold action to promote Minnesotans’ health, well-being, and safety. 
  • Special session begins; Minnesotans call for bold action

    by Clark Goldenrod | Jun 15, 2020
    To say the 2020 Legislative Session was unusual would be an understatement. In February, COVID-19 didn’t seem like an immediate threat and Minnesota’s state budget was showing a $1.5 billion positive balance.  

    Fast forward to today, and the state is under a peacetime emergency due to coronavirus. We are also looking at nearly 30,000 cases of coronavirus in the state as of June 12, more than 776,000 claims for unemployment insurance since mid-March, and a $2.4 billion state budget shortfall.  

    And on May 25, George Floyd was killed at the hands of the Minneapolis Police Department. His horrific death has sparked global protests and deep conversations about the future of policing and the urgency to build a state where we all feel safe, regardless of race, religion, or region.  

    Policymakers came back into special session on June 12, triggered by the fact that Governor Tim Walz has renewed the state peacetime emergency for another month. Minnesotans are calling for bold action from policymakers, to truly listen to the Black, Brown, and Indigenous Minnesotans who have long called for justice, and to make a concerted, inclusive response to the economic and health crises that COVID-19 has brought on.  

    How did the regular session end? 

    Policymakers took several important steps to respond to the health and economic components of the COVID crisis during the regular session. Walz issued executive orders to extend eligibility and increase flexibility to ensure Minnesotans had continued access to health care, economic supports, and other essential services. The Legislature passed a COVID response package that included additional funding for emergency child care grants, food shelves, housing and homelessness services, and support for businesses.  

    However, by the time the regular session ended on May 18, several important issues were still at play, including investing in Minnesota’s infrastructure through a bonding bill; economic security legislation passed by the House that included provisions such as housing assistance and emergency cash payments to very low-income children and their families participating in MFIP; and economic assistance to Minnesotans who had been left out of the federal CARES Act.   

    What’s next?  

    Walz has emergency authority powers so that he can respond quickly to the COVID-19 crisis. He can only renew this authority for a month at a time; when he announced renewal of that authority earlier this week, he also called the special session which allows the Legislature to respond. While the Senate voted to rescind that authority, the House voted down an effort to end the peacetime emergency, which means it will be in place for another month. It is possible that, if the governor chooses to continue his emergency powers in future, that there will be additional special sessions called later in the summer.  

    Changes to Minnesota’s policing practices will be front and center during the special session. In response to the death of George Floyd, the legislators in the POCI (People of Color and Indigenous) caucus put forth a set of policy proposals to change the way policing systems work across the state. These proposals range from changing the training methods that police are taught to investing in community-based mental health services. It’s well documented that Black and Brown people are disproportionately policed, arrested, and incarcerated in our current criminal justice system.  

    State policymakers also need to support the rebuilding of the communities most impacted by the events of the past several weeks, targeting that investment to those who built those communities in the first place, and avoiding the loss of generational wealth and displacement that could happen without intentional investment. Passing the POCI caucus package and focused reinvestment dollars would be important first steps, part of action needed at multiple levels of government, which center the voices and experiences of Black and Brown communities and creates a Minnesota where there truly is justice and opportunity for all.  

    Policymakers also should act in special session on other unfinished business, enacting the following concrete steps that respond to the current public health and economic crises and prioritize the Minnesotans who have been hardest hit: 
    • Provide a one-time emergency assistance payment for families participating in the Minnesota Family Investment Program (MFIP). This would provide financial resources for some of the state’s most struggling families, helping them to afford essentials like rent, food, and diapers. This policy would be good for our economy too, as the most effective way to provide economic stimulus is to get resources into the hands of those who will quickly spend those dollars. 
    • Provide COVID-related economic assistance to those left out. The “economic stimulus payments” paid directly to Americans through the CARES Act left out teenagers, young adults, and persons with disabilities whose families claim them as dependents on their taxes, as well as households in which a family member uses an ITIN (Individual Tax Identification Number). These folks have been impacted by the coronavirus like other Minnesotans; the state needs to step in where the federal government failed to support these individuals and families.  
    • Increase funding for affordable child care. Minnesotans were struggling to afford child care before COVID hit, and access to affordable child care will be especially important as people are increasingly back at work. Policymakers should take the common-sense step of increasing Minnesota’s out-of-date reimbursement rates to child care providers and bring Minnesota into compliance with federal requirements.  
    • Support essential local services through financial support to cities and counties. The federal CARES Act passed in March allocated $1.9 billion to the state of Minnesota to respond to emerging needs due to COVID, and encouraged states to distribute about half of that amount to local governments. Local governments have faced increased costs as they seek to respond to the public health crisis; additional dollars means they can keep meeting their residents’ needs and keep important public workers on the job.  
    • Pass an equitable bonding bill that requires projects funded by state general obligation bonds proceeds to comply with human rights provisions related to gender and race equity in hiring, and that supports capital projects from community-based organizations that are led by and serve communities of color and Native Americans.  
    Time is of the essence. The COVID-19 crisis, and the longstanding crises in policing and racial inequity in Minnesota, have damaged our health, livelihoods, and communities. Policymakers must take bold steps to better ensure Minnesotans can stay healthy, safe, and get by economically in the immediate term, and invest in resilience in all communities for the future. 
  • Additional federal funding to states is time-critical

    by Clark Biegler Goldenrod | May 06, 2020

    It's a key strategy in fight against coronavirus, deep recession

    Millions of Americans are facing hardship in the midst of the current public health and economic crisis induced by the novel coronavirus. States are taking action to meet their residents’ health, safety, and financial needs, as well as maintain other essential services that we count on. But states are rapidly approaching budget challenges of their own. Minnesota is no exception – an updated budget projection showed a $2.4 billion shortfall for the current biennium.

    The federal funding for state and local governments thus far does not come close to meeting the scale of the need in this moment. Federal policymakers should move quickly to direct significant additional funding to states (as well as local and tribal governments) to address the severe impacts of the public health emergency and the economic recession, and to prevent the economic downturn from getting worse.

    The federal government’s role is so important because states are required to balance their budgets. As Minnesotans and folks across the country are staying home to help control the spread of coronavirus, many are also losing income and spending less. That means state and local revenues are dropping at the same time that there’s an increasing number of people needing services to get by. This is why the federal government can and must be a strong partner to state, local, and tribal governments.

    What has happened so far: The CARES Act provided funding to state and local governments, as well as tribal nations, of which the $150 billion Coronavirus Relief Fund (CRF) was one the of the largest components. Minnesota state government is expected to receive $1.9 billion from the CRF. Other legislation temporarily increased the federal Medicaid matching rate, as long as states meet certain coronavirus-related coverage requirements. Medicaid is a joint federal-state government responsibility, and this was an important first step in what the federal government needs to be doing to support essential health care services in the states. 

    But much more is needed. The federal aid allocated so far will be dwarfed by the size of state budget shortfalls – which the Center on Budget and Policy Priorities estimates could total more than $650 billion over three years, with the expected shortfall in 2021 being much larger than seen in any year of the Great Recession. And that’s just the pressure on existing budgets – those numbers don’t include the cost to address the coronavirus.

    4-28-20sfp

    When they’ve lacked adequate federal support, states have often made decisions that increased hardships for their residents both during and after the recession. The Center on Budget and Policy Priorities has found that decisions in the last recession to lay off teachers and other public employees and reduce funding for other critical services also created a drag on the economy. Many of the challenges that states were wrestling with even before COVID-19 hit had their roots in the cuts made during the last recession, including crumbling infrastructure and higher tuition at public universities.

    The federal government should take two important steps to provide additional support to states:

    1. Further expand the Medicaid matching rate (FMAP) for the duration of the economic downturn, and maintain existing maintenance of effort requirements. Further increasing the FMAP would reach states quickly and protect Medicaid eligibility at a time when health care coverage is crucial; and
    2. Provide additional flexible funds to states. This could happen by adding funding to the Coronavirus Relief Fund. Federal policymakers should also reverse a counter-productive recent decision from the U.S. Treasury that would severely hamstring state and local governments from using these dollars to fund essential services that were already part of their budgets before the coronavirus hit.

    Do you agree with these priorities? Contact your federal representatives today.

  • May budget report reveals the need to support everyday folks

    by Clark Goldenrod | May 05, 2020
    Today’s May 2020 Interim Budget Projection demonstrates how the current health and economic crisis effecting Minnesotans’ daily lives has implications for the state’s budget as well. The report, out today from Minnesota Management and Budget, projects a $2.4 billion deficit for the current state budget cycle.  

    The economic numbers that drive this budget update also underscore why Minnesota policymakers must continue to take substantial action to meet the public health and economic security needs of everyday Minnesotans, and draw on the resources available to do so. 

    Here are some of the key figures in today’s budget projections: 
    1. The state is expecting a $2.4 billion deficit for FY 2020-21. That’s almost a $4 billion drop from the positive balance in the February forecast just a few months ago.
    2. This change is largely due to significantly reduced anticipated revenues. The state expects to collect $3.6 billion less in the current biennium than projected in February. Declines are expected in all major revenue sources: individual income, sales, and corporate taxes.  
    3. A relatively smaller net increase in state spending of $391 million is expected. The new spending number is based on $550 million appropriated in the legislative session so far, and updated estimates for Health and Human Services, since that’s the budget area most immediately impacted by coronavirus. This figure includes the positive effect of recent federal increase in funding for Medicaid. Without that federal action, the state’s share of spending would have been much higher and there would be a larger deficit.  
    Today’s budget projection was built on the same economic information we saw in the April economic update. The forecasters predict a 5.4 percent contraction in the national economy this year. They expect to see the economy start to grow again in the last quarter of 2020 and then more strongly in 2021, but that doesn’t mean we’ll be back to where we would be if not for the pandemic. 

    There’s a much higher level of uncertainty in these numbers than in most forecasts, many of them unique to the time we’re in, including the path of the pandemic and what additional decisions federal policymakers will make about providing aid to states and local governments.  

    These numbers will guide the decisions that policymakers make in the remaining weeks of the legislative session, and the months beyond. They remind us of how many of our neighbors are struggling, and the importance of taking swift action to reduce the hardships that Minnesotans and their families are facing as a result of the pandemic, and to start building for the economic recovery.  

    If we can find any good news today though, it’s that Minnesota has resources to draw on to ensure everyone in our state is healthy, safe, and financially secure. Federal dollars have an important role to play, and it's essential that federal policymakers do more. Minnesota should tap into the strong budget reserve that’s been built up for times like these. This economic crisis will not be over quickly, and fair taxation should be part of the solution as well. Minnesota can’t afford to pass new tax cuts; instead, those still doing well – profitable corporations and the wealthy – should shoulder more of the responsibility of funding the essential steps to ensure the health and well-being of our neighbors, and to support the recovery. 
  • Increased Medicaid funding to states protects health care, critical services

    by Betsy Hammer | May 04, 2020

    It’s a tried-and-true approach during times of crisis 

    The COVID-19 pandemic is requiring a range of policy responses to ensure people receive necessary health care and economic support. Increased federal Medicaid funding is a significant tool in the toolbox to make sure Minnesotans have the health care coverage that’s so needed in this pandemic, and also has the additional benefit of protecting other essential state services that Minnesotans count on.

    While they have taken some preliminary steps, federal decision-makers should further boost the Medicaid dollars it sends to states, make that increase last until the economy recovers, and maintain strong requirements to protect health care coverage.

    Let’s take a look at why increasing what we wonks call the “FMAP” is so important.

    Over one million Minnesotans get access to the health care they need, when they need it, thanks to affordable health coverage options like Medicaid and MinnesotaCare. During the current global pandemic, access to health care is essential to take care of our Minnesota neighbors.

    Ensuring that everyone has affordable access to COVID-19 testing and treatment is a critical part of addressing this public health threat. Medicaid is an important source of health care coverage for those most at risk to the worst outcomes to COVID-19, including seniors and people living with severe disabilities, and for those working at essential but lower-paying jobs.

    Eligibility for affordable health options is based on people’s incomes, so more people qualify for them during periods of economic strife as folks face job losses or reduced hours. And there are greater demands on these options when there are greater health care needs, like we’re seeing right now.

    States and the federal government share responsibility for funding Medicaid. The federal government matches a certain percent of state Medicaid spending through a mechanism called the Federal Medical Assistance Percentage, or FMAP.

    In March, Congress passed legislation that expanded the FMAP by 6.2 percent through the end of the public health emergency. Minnesota is projected to receive an additional $750 million in FMAP as a result.

    This is an important step in the right direction, but it’s not sufficient. It’s well below what was provided during the Great Recession and much less than requested by the bipartisan National Governors Association.

    Congress must act to further increase the FMAP rate and extend the boosted rates for as long as unemployment is high. Otherwise, many of our neighbors are in danger of losing their health coverage if they lose their jobs. Congress also must keep in place “maintenance of effort” rules so that states can’t restrict eligibility or terminate health care coverage.

    The economic disruption creates another threat to Minnesotans’ health and well-being. States across the country are facing substantial revenue shortfalls. Current estimates are that state budget shortfalls as a result of the pandemic’s economic fallout could be as much as $650 billion over three years.

    That points to the second important reason Congress must act swiftly to increase the FMAP. Because of the significant role that Medicaid plays in state budgets, the federal government has boosted the Medicaid FMAP in past economic downturns to provide fiscal aid to states.

    Since the state share of Medicaid funding makes up about 20 percent of Minnesota’s general fund spending, an increased FMAP can also free up state dollars for education, income supports, and other essential services that Minnesotans count on.

    Unfortunately, we’ve also seen that when states don’t receive sufficient federal support in tough times, they may increase hardships and create a further drag on the economy by laying off teachers and other workers, cut economic supports that their residents need more than ever, and reduce funding for schools and universities. States also put up barriers to getting and keeping Medicaid coverage. The impact of these choices from the last recession reverberate even today.

    Our current health and economic situation calls for the maximum response to help people stay safe and healthy during the COVID-19 pandemic and accompanying economic storm. FMAP is one of the crucially important tools the federal government must use to partner with states. It will help ensure that Minnesotans’ health, safety, and financial needs are met in this crisis, and to set the groundwork for a stronger economic recovery.

    Add your voice to this debate. Contact your Congressional representatives in support of additional Medicaid funding.

    And if you want to get into the weeds...

    FMAP rates are based on the average personal income in a state. Minnesota’s base FMAP is 50 percent, within the lowest FMAP tier in the country. FMAP rates can also vary within a state based on types of spending; for example, generally, spending to cover folks included in the Affordable Care Act’s Medicaid expansion gets a higher matching rate from the federal government.

    Minnesota spends about $5 billion per year on Medicaid from the state’s general fund, with the federal government paying about $8 billion and much smaller amounts coming from other sources.

  • Bold action needed to get through crisis, build equitable recovery

    by Nan Madden | May 01, 2020

    Minnesota has resources to care for each other

    Minnesotans are pulling together to get through this unprecedented public health and economic crisis. The situation has shone a spotlight on the ways we take care of each other through public services. There’s greater understanding that our schools not only educate our kids, but also provide nutritious food and access to physical and mental health supports. More of us have first-hand experience with the fragility of our child care system, challenges in accessing health care when we need it, the severe shortage of affordable housing, and the holes in the safety net that some working people fall through. We have new appreciation for the hard-working Minnesotans who make sure we can put food on the table, and who take care of those who are sick, elderly, or living with severe disabilities.

    The current crisis also highlights the inequities that were already present in our state and economy. The pandemic is causing greater health and economic harm to people of color and Indigenous Minnesotans, and at the same time, these members of our communities are more likely to be left out of policy actions taken so far.

    Minnesotans are doing their part. We must be able to count on Minnesota policymakers to continue to take aggressive action to meet the public health and economic security needs of everyday Minnesotans, and to draw on the resources needed to do so.

    Meeting Minnesotans’ health, safety, and financial needs should be the state’s top priority

    There’s more work to be done to ensure that all of us are getting the support we need to stay healthy and make ends meet. State policymakers should act quickly to enact proposals to provide emergency assistance to parents and kids struggling to get by on low wages, housing assistance, and other steps to ensure everyone can access the health care and income supports they need.

    Funding public services that strengthen our families and communities is a smart strategy that limits the hardships caused by the pandemic. What’s more, those dollars are cycled back into our economy when they pay the wages of teachers, nurses, and other workers; when they fund nonprofits that partner with government to strengthen their communities; and when Minnesota families make purchases from local businesses.

    The revenues that support these essential actions at the state and local government levels have also been hit by the pandemic and resulting economic disruption. But even in these tough times, Minnesota can and must draw on the resources we need to ensure we all are healthy, safe, and economically secure.

    Three strategies the state can use are:

    Maximize the use of federal dollars
    . In an economic downturn, more people need some support to get by at the same time that state revenues drop. The requirement to balance the state budget puts Minnesotans and their families in a squeeze. That’s why in times like these, the federal government provides additional dollars to state and local governments to address emerging needs, so that public services can continue, and to prevent the further drag on the economy that would be caused by cuts in public services or laying off teachers and other crucial public sector workers.

    The federal government has provided some funding to states, and Minnesota should maximize the use those dollars to meet Minnesotans’ needs. But more is needed - action so far falls well short of what the federal government should commit to support state and local governments to respond to the public health situation and to get through what’s sure to be a more prolonged economic downturn. Minnesota policymakers should take the ongoing federal deliberations and potential additional federal support into account in their state-level decision-making.

    Tap into the budget reserve.
    Minnesota has built a robust budget reserve; it’s time to draw on it to meet the challenges of this moment and to position the state for a stronger recovery.  

    Fair revenues are part of the solution.
    With state revenues dropping, policymakers should follow the saying, “When you find yourself in a hole, stop digging.” Minnesota can’t afford to pass new tax cuts for those who are still doing well. Such tax breaks won’t be very effective in stimulating the economy, and they would get in the way of taking care of the pressing issues that affect us all.

    Minnesota also needs to look to raising additional revenues. The current crisis is not impacting all businesses and people equally. It makes sense to ask those who have not been hard hit – profitable corporations and high-income people – to shoulder more responsibility for funding the essential investments that we need to make to help us all get through.

    Minnesota ended its last fiscal crisis by turning to progressive revenue raising and investing in broader prosperity, and we came out of the recession the stronger for it.

    Do you agree with these priorities? Contact your state legislators and federal representatives today.

  • Racial equity should be at the core of coronavirus responses

    by Abimael Chavez-Hernandez and Clark Goldenrod | Apr 07, 2020
    Our nation and state are facing an unprecedented public health crisis in the novel coronavirus. Leaders at all levels have been and must continue to advance policy responses that both keep people safe and respond to economic concerns, including millions of workers across the U.S. now out of work.  

    Due to the impact of historical racism and ongoing forms of discrimination and bias, BIPOC communities (Black, Indigenous, People of Color) will more acutely feel the economic and health effects of this coronavirus crisis. Without attention to equity, they are more likely to be left out of the policy responses.  

    At the federal, state, and local levels, policymakers should explicitly focus on racial equity in their responses to COVID. These policies should: 
    • Ensure that access to public supports like health care and food assistance do not exclude people because they have low incomes, are out of work, or because of their immigration status; 
    • Include financial supports that benefit the lowest-income individuals and families (which disproportionately include BIPOC communities), so that they can meet their basic needs through this crisis; these folks should not face greater barriers to accessing assistance; and 
    • Include support for employers, including access to capital, that are specifically designed to include small businesses owned by BIPOCs, which often are not able to draw on the same pool of resources or wealth as white-owned businesses. 

    More serious economic impacts

    Due to past policies that limited their ability to build income and wealth (such as redlining), and underinvestment in education and health care in their communities, people of color face structural barriers that make it harder to succeed in today’s economy. 

    These policies have resulted in a few realities for people of color: they are both more likely to work in lower-paid jobs and to work in essential positions that serve our communities during this public health emergency. They are more likely to work in low-wage jobs that make it harder to make ends meet or to build savings to draw on in times of crisis. They also can work in sectors that are more likely to be shut down during the pandemic and ensuing economic recession, including the restaurant and hotel sectors. Households of color in Minnesota are almost three times as likely compared to white households to not have enough emergency savings - defined as having enough liquid assets, such as savings accounts, to live at the poverty level for three months if they suddenly lost their jobs.  

    People of color are also more likely to be employed in essential positions, such as grocery and child care workers, that continue to serve our communities but in which it is harder for workers to protect themselves from coronavirus.  

    More serious health impacts 

    Public health research has shown health outcomes are strongly affected by socioeconomic factors, like quality of housing, transportation access, and income. We also know that people of color are more likely to have worse health outcomes, and could be more vulnerable to worse health outcomes in the midst of this public health crisis and rapidly changing economy.  

    In the midst of the coronavirus pandemic, respiratory health is of particular concern. Those with respiratory health issues are among the most vulnerable to the most serious health consequences of coronavirus. Communities of color are at greater risk, given higher prevalence of respiratory conditions; for example, Black Americans are more likely to suffer from asthma than white Americans.  

    People of color are also more at risk during this public health crisis because they are less likely to have access to affordable health care. Despite significant improvements over the past decade thanks to the Affordable Care Act, people of color are still less likely to have health insurance. While the overall uninsurance rate in Minnesota is 5.1 percent, that rate is substantially higher at 6.6 percent for Black Minnesotans. For Latinx and American Indian Minnesotans, uninsurance rates are about three and a half to four times higher than the state average. Furthermore, people who are undocumented are less likely to see a doctor due to cost or concerns about use of public insurance options. Nationally, almost half of undocumented people are uninsured compared to 9 percent for citizens.  
  • Minnesota Legislature takes additional action on COVID-19

    by Betsy Hammer | Apr 01, 2020

    Minnesotans are collectively facing an unprecedented global pandemic and a statewide stay-in-place order to help stem the spread of COVID-19. The Minnesota Legislature approved additional health and economic supports last week, including expanded access to health care, financial loans for small businesses, and emergency funding for child care providers.  

    The Minnesota House and Senate passed a  $331 million package of COVID-19 relief measures on March 26. Small business owners, child care providers, and many everyday Minnesotans will benefit from the measures. While the final package contained many of Governor Tim Walz’s revised supplemental budget recommendations rolled out earlier in the week, some proposals that would have been extremely meaningful to struggling Minnesotans were left behind. This legislative package is in addition to emergency response legislation passed earlier in March and many executive orders.  

    The new legislation includes: 

    • $40 million to DEED for the Small Business Loan Guarantee Program and the Small Business Emergency Loan Program,  

    • $30 million for emergency child care grants,  

    • $9 million in funding for the Minnesota Food Shelf Program,  

    • $6.2 million for military veterans,  

    • $32 million in emergency assistance for housing insecure and homeless populations, including for additional housing support, shelter space, hygiene and cleanliness, and increased staffing, 

    • $11 million for tribal nations to pay for COVID-19 emergency response,  

    • funding for faster Real ID implementation and processing, and  

    • A $200 million COVID-19 peacetime emergency fund managed by Minnesota Management and Budget to support the state’s response to COVID-19.  

    The bill also includes some policy changes that will make it easier for Minnesotans to stay put for the duration of the stay-at-home order, which is currently set at least through April 10. The list of adjustments is lengthy and includes lifting limits on prescriptions that had previously been dispensed in a time-limited manner, making it easier to apply for a REAL ID-compliant license, extending expiration dates for driver’s licenses and other types of state-issued licenses, and more.  

    While this legislation (House File 4531) includes many elements to strengthen Minnesota’s response to COVID-19, some essential pieces were left out – particularly related to low-income Minnesotans. Walz recommended additional funding for rental assistance, a one-time $500 emergency payment for families participating in MFIP (Minnesota Family Investment Program), and funding to ensure that the Department of Human Services has the flexibility and funding to continue providing and accessing critical services, as outlined in a recent executive order. None of these were included in the bill passed last week. Ensuring that Minnesotans trying to get by with lower incomes can stay safe in their homes and have funds to buy household needs is essential; these items are unfinished business and must be a priority for legislative action in the very near future.  

    The COVID-19 pandemic is an unprecedented global crisis. While we appreciate that Minnesota legislators and the Walz administration have taken significant rapid action, our state’s response must include all of our Minnesota neighbors.  

  • Governor Walz’s supplemental budget request focuses on pandemic response

    by Betsy Hammer | Mar 27, 2020

    Governor Tim Walz rolled out a revised supplemental budget proposal on March 22 that includes an additional $356 million to fund the state response to the COVID-19 pandemic. The proposal includes significant investments in services to help people hit hardest by both the virus and the economic fallout of social distancing measures. 

    Walz’s revised budget proposal focuses on critical needs. As we’ve previously stated, we need both near-term and long-term solutions to expand the ability of Minnesotans to care for themselves and their families as we take action to address the public health emergency. Government entities have a major role to play in protecting people, and the response should focus on low- and moderate-income folks who will be hit hardest and are least able to absorb economic shocks. The revised budget proposal addresses both economic stimulus measures and flexibility to maintain essential service delivery infrastructure.  

    Economic stimulus and additional funding for essential services 

    The governor’s proposal includes an additional one-time $500 in emergency assistance for the very low-income families participating in the Minnesota Family Investment Program (MFIP), funded primarily from the TANF fund. This will provide essential financial resources for some of the state’s most struggling families; it’s also good for us all, as the most effective way to provide economic stimulus is to get financial resources to low- and middle-income households, who are more likely to spend those dollars and shore up demand in the economy.  

    Walz’s proposal also includes funding for food and shelter for Minnesotans, including $9 million in additional funding for food shelves and $43 million in housing-related spending. That funding would go towards emergency shelters, hygiene and sanitation supplies for shelters, motel/hotel-based quarantine options for people experiencing homelessness, overtime and medical support for shelter staff, a temporary increase in housing support amounts, and additional funding for family homelessness prevention and assistance. 

    Walz’s revised budget request includes funding for several programs aimed at helping people and businesses make it through the pandemic. It includes $30 million in grants to child care providers, who are important frontline workers and business owners who face a great deal of uncertainty in revenues and demand. Other initiatives include $10 million for a small business loan guarantee program through DEED, and $6 million in emergency grants through Veterans Affairs. 

    Flexibility for essential services 

    The governor’s proposal includes $57 million for the Department of Human Services to implement temporary emergency measures outlined in the governor’s recent administrative orders EO 20-11 and EO 20-12, which will help ensure that Minnesotans can continue to access the services they need. As stated in the budget documents, “flexibilities already being implemented include regulatory changes designed to protect benefits and ensure people do not lose coverage during this outbreak, cover COVID-19 diagnosis and treatment costs, allow for in-person work to be converted to phone work, and other changes to allow Minnesotans supported by the Department of Human Services to shelter in place without losing their support.” Important flexibility is being provided, for example, waiving requirements for in-person meetings with caseworkers, expanding the ability to provide mental health services through telemedicine, and allowing automatic renewals for critical health care and income support services.  

    In addition, the revised budget proposal includes additional administrative funding to counties managing MFIP, and flexibility for licenses and registrations managed by the Department of Commerce. The proposal includes a new $200 million COVID-19 emergency management fund at Minnesota Management and Budget. This fund would be flexible to respond to any state agency needs related to COVID-19.  

    The governor has issued many executive orders recently under his emergency authority, and this revised supplemental budget proposal includes funding for those measures as well as additional changes that would need legislative action and appropriation.  

    Walz’s revised budget recommendations include a wide range of necessary spending to support an appropriate, active response to the COVID-19 crisis and strengthen the safety net to help us all weather the coming storm. 

  • Walz and Legislature working to combat coronavirus

    by Clark Goldenrod and Betsy Hammer | Mar 26, 2020
    Even though goings on at the Capitol look a little different right now in response to the novel coronavirus, policymakers have still been at work to support Minnesotans in a time of a rapidly changing health and economic landscape.  

    We’ve called for strong policy action at all levels of government to help stop the spread of coronavirus, support the economic well-being of our Minnesota neighbors, and reduce the virus’s overall economic harm.   

    Here are a few highlights of the state’s response so far:  

    Earlier this month, the Legislature passed nearly $21 million for the Public Health Response Contingency Account. This funding is intended to support the state's COVID-19 health care response, including increased staffing, lab supplies, personal protective equipment, and local public health needs.  

    Starting on March 13, Governor Tim Walz has announced a series of executive orders aimed at supporting Minnesotans and curtailing the spread of coronavirus. They range from closures of schools and many restaurants and bars, to delaying elective medical procedures.  

    An important measure that Walz has taken to address the economic impact is to expand access to Unemployment insurance (UI). Unemployment Insurance can provide partial wage replacement to workers when they become unemployed or have had their hours greatly reduced. The governor waived the normal waiting period for unemployment benefits in order to get support to workers as quickly as possible. He also adjusted the requirement that one needs to be looking for work while receiving UI benefits. UI eligibility has been expanded to include workers who face situations such as:  

    • Have been told by a health professional to avoid contact with others,   
    • Have been told to not come into work because of the outbreak, or  
    • Are unable to work due to canceled school or unavailable child care.

    Folks who want to apply for unemployment benefits in Minnesota should go to www.uimn.org

    Walz also issued several executive orders to ensure that Minnesotans can continue to access vital services like health care, child care, nutrition assistance, and housing. The new authority will allow the Department of Human Services (DHS) and community-based service providers to continue their essential work even as our world changes. Important flexibility is being provided, for example, waiving requirements for in-person meetings with caseworkers, expanding the ability to provide mental health services through telemedicine, and allowing automatic renewals for critical health care and income support services. There is also a special enrollment period for those seeking health insurance coverage through MNsure

    The emergency powers granted to DHS will allow for flexibility so that folks can get what they need safely and securely. However, more is needed to provide the financial resources that critical parts of our service infrastructure, such as Minnesota’s child care providers, need in order to stay in operation and keep serving their communities. 

    More will need to be done to make sure that Minnesota’s workers, families, and local businesses are supported as we navigate this public health and economic crisis. These responses should be rooted in equity, especially considering that recessions inflict the greatest harm on people with low incomes and people of color. Both of these groups are more likely to lose their jobs in an economic downturn, and people of color already often have much less income and wealth than they would have otherwise because of historical racism and ongoing forms of bias and discrimination.  

     Keep watching our blog for updates on further federal and state policy action. 

     
  • Minnesota moderately well prepared to respond to looming recession

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

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

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

    Significant and flexible budget reserves 

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

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

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

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

    Strong unemployment insurance 

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

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

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

    Accessible Medicaid   

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

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

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

    Affordable higher education

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

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

  • Policymakers must act to prevent economic hardship, deep recession

    by Betsy Hammer and Nan Madden | Mar 16, 2020

    The novel corona virus is having unprecedented impact around the world. As policymakers focus on the necessary medical and societal responses to save lives, we also urge policy action at all levels of government to reduce the overall economic harm and support Minnesotans to maintain their well-being.  

    We all have a responsibility to do what we can to flatten the curve. That means practicing social distancing and other steps recommended by public health officials that will help focus medical interventions on those most in need – but which will also have massive implications for many Minnesotans’ incomes. As conferences, sporting events, concerts, and social gatherings are canceled, we are already seeing the impact on those who work in related industries. The economy may already be tipping into recession, and policymakers must act to alleviate financial hardship and reduce the threat of a more serious recession
     
    The disruptions to the economy and other aspects of daily life are laying bare serious holes in the safety net. Many Minnesotans will face challenges with their ability to meet basic needs while protecting their own health and their families and communities. This includes people out of work and those sent home from work, as well as those who do not have access to services in the usual places. 
     
    These times require immediate policy responses, as well as additional tools down the road. They will require flexibility in our programs and policies to ensure that we meet the needs of our people and our communities as situations change. Policymakers should take the following steps: 

    Maintain and expand access to essential supports, and fill holes in the economic safety net. Many financial supports - like Unemployment Insurance, Child Care Assistance, food assistance through SNAP, and the Minnesota Family Investment Program – currently have requirements such as working a certain number of hours, actively looking for work, meeting with caseworkers in person, or being on hold through waiting periods. These need to be waived so people aren't prevented from accessing essential supports due to conditions beyond their control.  

    Through the course of this pandemic and the resulting economic disruption, financial hardship will certainly grow. Services that help people meet their basic needs in tough times must expand to meet the need. In addition, some systems will need to adapt and provide alternative service delivery options, like ensuring children have access to food while schools are closed. 

    Too many workers face economic insecurity because they do not have paid sick days or paid family leave. We need both near-term and long-term solutions to expand the ability of Minnesotans to care for themselves and family members without sacrificing their economic security. 

    Enact economic stimulus measures focused on those hit hardest. The most effective way to provide economic stimulus is to get financial resources to low- and middle-income households, who are more likely to spend those dollars and shore up demand in the economy. This can happen by boosting payments through existing support systems such as SNAP, MFIP, and Unemployment Insurance, as well as targeted tax provisions. 

    Provide federal aid to states. The federal government has an important role to play in helping states respond to emerging issues and economic shortfalls. That’s because states have to balance their budgets, but when faced with public health or economic challenges, states have higher costs at the same time that their financial resources take a hit. One thing the federal government should do right away is increase their matching rate for Medicaid funding. This should be followed by further measures to boost Medicaid funding and provide additional aid to states. This would allow states to maintain services and prevent state budget cuts that would only be a further drag on the economy.  

    Respond flexibly to maintain the infrastructure of service delivery. Public services are often delivered through partnerships with nonprofit and for-profit providers, such as child care centers and social workers. Some providers may see a greater demand for their services because of increased need, others may have reduced ability to provide services because of economic disruption. Governments need to show flexibility around meeting contract benchmarks and deliverables, and other conditions of these partnerships so that providers can best respond to the changing environment and stay in business. 

    All of us must continue to counter discrimination. There is no place for discrimination and racism against Asian folks in our communities. No group of people is responsible for this outbreak or is more likely to have the virus. People who believe they have been discriminated against should contact the Minnesota Department of Human Rights at 651-539-1133.  

  • Caution, savings in Governor Walz's proposed budget

    by Clark Goldenrod, Betsy Hammer, Nan Madden | Mar 12, 2020

    Governor Tim Walz's FY 2020-21 supplemental budget proposal released today focuses on passing a significant capital investment or bonding package and making small, strategic investments in several areas of the state's budget. It leaves much of the state's projected surplus unspent with the goal of "ensuring fiscal stability and addressing emergency response and preparedness needs across the state."

    In the midst of a global pandemic due to COVID-19 (coronavirus), officials and the public are responding to a rapidly changing environment. The governor's budget takes a prudent path. It seems certain that the state's actual economic performance will be less than assumed in the February forecast and the projected $1.5 billion surplus is too optimistic. 

    The supplemental budget describes Walz's proposed changes to the two-year state budget passed last year. For FY 2020-21, Walz proposes $355 million in net additional general fund spending. In the next biennium, he refills the state's budget reserve, undoing a decision made last session that would have substantially weakened it. 

    Governor Walz's FY 2020-21 supplemental budget proposal   Net general fund impact
     Health and Human Services  $137 million
     Capital Projects and Grants  $69 million
     Public Safety and Judiciary  $67 million
     E-12 Education  $27 million
     Debt Service  $20 million
     State Government and Veterans  $13 million
     Environment  $11 million
     Transportation  $7.4 million
     Jobs, Economic Development, and Commerce  $2.1 million
     Agriculture and Housing  $300,000
     Total  $355 million

    Preparing for an uncertain future
    The governor takes two smart strategies to prepare for an uncertain budget and economic future. First, he leaves a substantial amount of the projected surplus, almost $1.2 billion, unspent or "on the bottom line." 

    Second, he promotes future budget stability by rebuilding the state's budget reserve. For years, policymakers have responsibly added to the reserve so that when a recession hits and state revenues plummet, the state can avoid drastic cuts in critical services and respond to the challenges Minnesotans face. Right now, the budget reserve is finally at its recommended level of about $2.3 billion, but last session policymakers decided to withdraw almost $500 million at the beginning of FY 2022-23. Walz's proposed budget would reverse this decision. This is especially important at a time when the economy is starting to turn, and state revenues may decline with it. 

    Health and Human Services

    Walz's proposed supplemental budget makes the largest investments in Health and Human Services, totaling a net $137 million for FY 2020-21. 

    His budget recommendations include nearly $21 million for the Public Health Response Contingency Account. This funding is intended to support the state's COVID-19 response, including increased staffing, lab supplies, personal protective equipment, and local public health needs. This is consistent with the bill language signed into law earlier this week.

    The governor's proposed budget also would increase state reimbursement rates to child care providers to 30 percent of market rates, and update reimbursement rates every three years. These changes will bring Minnesota into compliance with federal requirements and avoid financial penalties. The changes are funded primarily by federal dollars in FY 2021 with a more significant $84 million in state funding for the FY 2022-2023 biennium. Current reimbursement rates are at the 25th percentile based on 2011 market rates and are woefully inadequate, making it hard for families to find providers and creating financial strain on providers. The proposal also includes $2 million for economic development grants to support child care providers.

    The supplemental budget includes funding so that tribes and counties do not have to repay money to the state. Recent DHS errors resulted in overpayments, including $29 million to reimburse tribal governments and $9 million to reimburse counties.

    Recent harmful federal rule changes would take food off the table for many Minnesotans. Walz's proposed budget importantly includes $18 million in state funding to ensure food benefits for about 8,000 Minnesotans who would lose access to the federal Supplemental Nutrition Assistance Program, or SNAP.

    Public Safety
    Another area of more significant investment in the governor's proposed budget is Public Safety, with a proposed general fund impact of $67 million. Almost half of that, $30 million, goes to the state's Disaster Assistance Contingency Account. The governor's budget notes that the account is currently empty, and is putting forth money to respond to natural disasters over the next year and a half. 

    E-12 Education
    Walz's E-12 Education proposal totals $27 million for FY 2020-21. His largest investment in this area is intended to support the mental well-being of students. The governor also makes several small strategic investments aimed at making the state's education system work for all Minnesota students, whether they're Black, Brown, or white. These include reestablishing Full Service Community Schools grants, which provide wraparound services for "racially isolated or low-performing schools"; funding for equity coaches to support teachers; a new requirement that all students learn about tribal nations; and restoring funding for tribal Head Start programs. 

    Taxes
    Consistent with the understanding that current economic conditions are significantly more serious than anticipated at the time the February Forecast was released, Walz's budget maintains the state's existing tax revenues. 

    The one proposal in the tax area is to tax retail sales of nicotine solution and vaping devices. This is one component of an initiative to deter youth from using vaping products; the health portion of the budget also includes a public education campaign focused on addressing youth tobacco, nicotine, and e-cigarette use.

    What comes next?
    Minnesota policymakers will need to be nimble as they make decisions this legislative session, and respond to a rapidly changing environment. New policy ideas are being introduced every day to respond to the public health and economic concerns of Minnesota residents. Walz's budget demonstrates the right approach: recognizing the uncertainty of the state’s fiscal situation, prudently rebuilding the budget reserve and leaving funds on the bottom line, and prioritizing investments to advance equity and the economic security of workers, families, and communities.

  • 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.