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

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.budget-reserve-updated-fall-2017-01
  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

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

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

Some of the top takeaways from the Update include:

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

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

january-economic-update-gdp

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

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

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

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

-Clark Goldenrod

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4 Reasons DACA should be restored ASAP

Deferred Action for Childhood Arrivals (DACA) has improved about 800,000 lives in the United States, and 6,300 in Minnesota. However, earlier this fall President Donald Trump announced his elimination of DACA and has left the fate of a program that has supported thousands of immigrant lives and communities around the country in the hands of the U.S. Congress. There are many reasons why Congress should pass legislation such as the Dream Act, that would provide lawful permanent status for DACA recipients. Here are four:

  1. DACA is important for building the future workforce that Minnesota needs. DACA recipients have been able to pursue educational opportunities they otherwise wouldn’t have been able to access. DACA recipients can also find higher quality jobs that better match their skills, and can get to and from their jobs more reliably, thanks to their ability to access driver’s licenses.
  2. DACA results in increased economic activity in our communities and increased tax revenues. DACA recipients in Minnesota contribute an estimated $15 million in state and local taxes annually.
  3. Because DACA permits aren’t being renewed, 122 Dreamers lose DACA every day in the United States. More than 10,000 have lost their DACA status to date. This means young people across the country are losing their work permits and their temporary relief from deportation. Researchers have calculated that removing all DACA recipients from our communities and our economy would wipe away $280 billion to $460 billion from the U.S. gross domestic product, or GDP, cumulatively over a decade. Minnesota could lose about $377 million of economic activity annually.
  4. DACA acknowledges the investments our country and state have made in young people who have grown up here, allowing them to further their educations and careers. DACA was created in 2012 as a common-sense way to recognize the investments we have made in the young people who have grown up here. Many DACA recipients are living, studying, and working in the only country they call home.

As hundreds of young people lose their DACA status each week, it is imperative that Congress pass legislation such as the Dream Act to restore protections for these young people. We’ve long urged that Congress pass immigration reform that respects the basic human dignity of immigrants, provides a path to citizenship, keeps families together, and protects the rights of and conditions for workers. The Dream Act is one small step toward this important goal.

-Clark Goldenrod

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State of Working Minnesota: Low-wage workers still struggling in the economy with stagnant wages

Minnesota has experienced a fairly strong economic recovery since the Great Recession, with low overall unemployment and a growing economy. However, as of 2016 many Minnesotans have not seen the growth in wages that we would expect eight years into an economic recovery, according to data from the Economic Policy Institute.

As a result, many working Minnesotans can’t meet their basic needs for child care, transportation, housing and health care. The inflation-adjusted wages of many Minnesotans have only recently gotten back to where they were before the Great Recession hit, and wages aren’t keeping up with the cost of living.

Wage Growth Faster at the Top

Even though the recession ended in 2009, Minnesota low-wage workers’ wages have just recently caught up to pre-recession levels.swm-wage-percentiles-01 Since the 1970s, we’ve seen a national trend of wage growth going primarily to high-wage workers, and very slow growing wages for other American workers. Since 1979, inflation-adjusted wages have only increased by about 15 percent for low- and median-wage workers while high-wage workers’ wages have increased by 36 percent. The new wealth being created in our economy clearly has gone primarily to the highest earners and has not found its way to many who have worked hard at the bottom and middle of the pay scale.

Many Workers Struggle to Make Ends Meet

Many Minnesota workers earn less than what it takes to support a family. The Minnesota Department of Employment and Economic Development calculates that both parents in a typical family of three would need to earn $17.69 per hour to afford their basic needs.swm-living-wage-01 This basic needs budget only includes necessary expenses that Minnesota families face, such as the cost of food, child care, housing, and health care. It does not include money for savings, entertainment, or vacations. However, there are just not enough living-wage jobs that pay enough to cover basic needs. And workers of color and workers with lower levels of formal education are more likely to lack living-wage jobs. In 2016, over half of Minnesota’s African-American and Hispanic workers and workers without a college degree made less than the living wage to support a family of three. And we also know that workers in Greater Minnesota face a larger gap between what they earn and what it costs to make ends meet. These workers are integral to our state’s economy, yet today too many don’t earn enough to support a family.

State policy choices can play an important role in building a future where all Minnesota workers benefit from the economic growth they help create. Policymakers can ensure that Minnesotans’ hard work pays off and build a strong economic future for all of us by supporting:

  • Policies that improve job quality standards, such as expanding access to earned safe and sick time;
  • Tax policies that narrow, rather than amplify, income inequality; and
  • Policies that ensure Minnesotans can get the education and training they need, and can live near and get to good jobs that make full use of their skills.

-Clark Goldenrod and Nathan Williams

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US Senate tax bill would cause millions to lose affordable health care, proposed “fixes” wouldn’t undo the harm

The Senate tax bill includes changes in health care policy that would result in 13 million fewer Americans having health insurance and about a 10 percent increase in premiums for those buying insurance on the individual market. That’s the impact of eliminating the health insurance mandate. What’s it doing in the tax bill? Mandate repeal frees up more than $300 billion over the next decade – because when fewer people have health care coverage, the federal government spends less on things that make health care coverage more affordable, like premium tax credits, other cost-saving measures, and Medicaid. Policymakers have used that $300 billion to pay for tax cuts primarily for businesses and the wealthy.

Senator Susan Collins (R-ME) has reported that the Senate is expected to vote for other legislation to improve the individual insurance market, including the Alexander-Murray individual market reform legislation and Collins-Nelson reinsurance proposal. But these proposals would do little to reverse the coverage losses, premium increases, and disruption caused by the repeal of the individual mandate. And if policymakers succeed in enacting massive tax cuts, it will make it even harder to fund any additional legislation to improve access to affordable health care coverage.

Alexander-Murray legislation is a bipartisan compromise meant to reduce premiums and increase stability in the individual insurance market. Among other things, it would restore the “cost-sharing reduction” payments to insurers that pay for measures that reduce out-of-pocket costs. But Alexander-Murray was crafted for the health care environment that existed before the mandate repeal bombshell was dropped into the tax bill. Analysis by the Center on Budget and Policy Priorities finds that the combined impact of repealing the individual mandate and enacting Alexander-Murray would be about as harmful as repealing the individual mandate alone:

  • 13 million Americans without health insurance. Alexander-Murray impacts the individual health insurance market, but the coverage losses from mandate repeal are in multiple areas: Medicaid, employer-based, and individual market.
  • Premium increases in the individual market. In 2019, this combination of policy changes would likely result in small reductions in premiums for “silver” insurance plans and higher premiums for other plans purchased in the individual market. All plans would have higher premiums starting in 2020. Alexander-Murray would have no impact on the 10 percent projected premium increases that would result from the market pressures caused by repealing the individual mandate.
  • Increased market instability. Alexander-Murray was designed to address the market instability caused when President Donald Trump said he would stop funding the cost-sharing reduction payments. But it won’t resolve the turmoil caused by mandate repeal, which is the equivalent of pulling out several bricks from the bottom of a Jenga tower, and could result in insurers leaving the individual market.

The Center on Budget and Policy Priorities similarly find that, the Collins-Nelson reinsurance proposal would have little real impact on the damage done by mandate repeal. This proposal would provide $2.3 billion annually in 2018 and 2019 to fund state reinsurance pools, which cover some or all of insurers’ costs for high-cost claims.

  • The proposed reinsurance pool is too small to reverse rising premiums. It’s estimated that it would take roughly a $5 billion a year permanent reinsurance program to counter the 10 percent increase in premiums resulting from mandate repeal. The Collins-Nelson bill would provide less than half that amount, and for two years only.
  • Little impact on market instability. It’s hard for a temporary program to address uncertainty about the future of the individual insurance market and overall health care landscape.
  • Only a small reduction in the number losing health insurance coverage. Estimates are that a permanent reinsurance program of this size could increase coverage by fewer than 1 million; that’s only a small dent in the 13 million who are expected to lose coverage.

Some have downplayed the widespread coverage loss from mandate repeal – arguing that it’s just a matter of individual choice. But some of those who would lose coverage would do so because the ripple effects of the mandate repeal would make coverage unaffordable, not because they would prefer to go without health insurance.

Changes like Alexander-Murray and Collins-Nelson won’t substantially alter the fact that many everyday Americans would be made worse off than they are today by the combination of tax changes and lost health care funding. Combined with ongoing delays in renewing funding for the Children’s Health Insurance Program and looming threats to Medicare and Medicaid, this is a very bad omen for Americans’ access to affordable health care.

-Nan Madden

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Minnesota’s November budget forecast shows deficits amid high uncertainty

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

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

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

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

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

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

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

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

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

-Clark Goldenrod and Nan Madden

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Rankings of state “business climate” are misleading, fall short of actual measures

Note: I had the opportunity to see Dr. Peter Fisher present on state business climate rankings at the recent Minnesota Policy Conference. We asked him to summarize his findings in this guest blog.

Minnesota has the third best business climate in the U.S. Or maybe it has the third worst, or somewhere in the middle. It all depends on which ranking you believe.

So which one should you believe? The short answer is, probably none of them. Any ranking that claims to have come up with a single metric that represents the overall state “climate” for businesses considering setting up shop in Minnesota is suspect.

That includes the Tax Foundation, which just released their 2018 State Business Tax Climate Index, which put Minnesota at 46th – only four states worse. It includes the ALEC-Laffer report, Rich States, Poor States, which invents an “Economic Outlook Ranking” that places Minnesota 45th, and the Small Business and Entrepreneurship Council’s Small Business Policy Index, where Minnesota is 47th.

The basic problem with these rankings is that they are not based on research or evidence of which factors contribute how much to a state’s prospects for economic growth or its attractiveness for new business investment. And all three of those just cited base most or all of their ranking on various measures of taxes; the rankings are designed to promote the anti-tax, anti-government agenda of the organization producing the ranking.

The proof is in the pudding, as they say. Does recent state performance support the claims by these organizations that their index provides a recipe for state growth and prosperity? No. States that did better on the Economic Outlook Ranking have not grown any faster in subsequent years than states that did poorly, and the states with the best rank actually have lower incomes and higher poverty rates than the states with a low rank. The states scoring highly on the Small Business Policy Index have done no better on a variety of measures of entrepreneurial activity and small business growth than states scoring poorly.

There are rankings that are much broader, taking into account the quality of the state’s workforce, the cost of living, quality of life measures, education and infrastructure investments, and other factors that can matter to businesses and to the workers they hope to attract. On these indexes, Minnesota ranks much higher – as high is third by CNBC’s Top States for Business, and 15th by Forbes’ Best States for Business.

It is tempting, if you are a Minnesotan proud of your state’s investments in public services and the quality of life your state offers, to decide that these rankings are the ones to pay attention to. But here’s the rub. While the individual measures that go into the rankings – average education level of the workforce, for example – do provide useful information, the overall index is still suspect. That’s because dozens of disparate measures are weighted arbitrarily and mashed together into a single index number that has no real science behind it.

My advice? Yes, pay attention to how your state is performing on particular measures – growth in wages, incomes, education levels of the workforce, environmental quality. Look at real research on the benefits and costs of programs like job training or child care assistance or infrastructure. But forget about these rankings of a mythical “business climate” that are driven by the desire either to promote an agenda, or sell magazines.

Guest blog by Peter Fisher, Research Director of the Iowa Policy Project and Professor Emeritus of Urban and Regional Planning at the University of Iowa. For a more detailed critique of these rankings, visit his website: Grading the States: Business Climate Rankings and the Real Path to Prosperity

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Senate tax bill harmful, irresponsible

Minnesota Budget Project Director Nan Madden’s public statement on the Senate tax bill passed last week:

I’m extremely disappointed, and frankly alarmed, that such a harmful, irresponsible and unpopular tax bill was passed.

The bill gives large and permanent tax cuts to profitable corporations at the expense of most Americans. The harm will be dramatic, particularly to those who look to the safety net to get through rough times or to health care supports like Medicaid to live and thrive. The tax cuts add more than $1 trillion to the deficit, and to pay for it, policymakers have clear plans to come back and deeply cut health care and other critical services, leaving the nation’s children, elderly, people with disabilities, workers, and families worse off.

The fast-track process that allowed this sweeping tax legislation to pass the Senate without bipartisan support also required that it not add to the nation’s deficit after 2027. The bill’s authors have cynically sought to meet that requirement through a set of fiscally irresponsible gimmicks that hide the true cost of the bill and fail to prioritize everyday Americans. For example, the provisions that provide individual income tax cuts expire, while making the corporate tax rate cut permanent. It would increase taxes for millions of working-class and middle-class families.

Further, this bill includes damaging health care policies that would result in 13 million fewer Americans with health insurance, and increase premiums for those who purchase health insurance in the individual market.

In all, this is about the worst set of policies that could be packaged together. Small changes won’t change the fundamental flaws in this bill. These aren’t the priorities that most Americans expect.

Minnesota’s elected officials need to take a strong stand against this dangerous tax bill. Policymakers should sharpen their pencils and go back to work to craft a tax plan that doesn’t pave the way for deep cuts in health care and other crucial services, and that doesn’t provide big tax cuts for corporations and the wealthy at the expense of families living paycheck to paycheck.

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Child Tax Credit in Senate tax bill provides minimal benefits to working families, harms immigrant families

The U.S. Senate is currently considering a tax bill that would provide the largest tax benefits to those already doing well in today’s economy. As we’ve explored in prior blogs, the Republican plans provide small and shrinking tax benefits for lower- and middle-income families, and many would actually see tax increases. Senate leadership has lifted up their Child Tax Credit (CTC) expansion as their signature benefit for working families. However, an analysis from the Center on Budget and Policy Priorities shows that many families would be left out of the CTC expansion, and many immigrant families would see their tax credits completely eliminated. And the expansion is temporary, expiring after 2025.

The Senate tax bill doubles the maximum CTC that families can qualify for to $2,000 per child. It also extends the credit for the first time to high-income households – for example, married couples with two children and incomes between $150,000 and $580,000 would become newly eligible. It’s high-income families who see the largest benefits, while working-class families see only a small increase. This is because the CTC is not fully available to families who have incomes below a certain level, and the proposal on the table does little to fix this. Many of these parents receiving a less than a full increase are working to make ends meet in sales, food preparation or administrative support jobs. Additionally, about 1 in 7 of all U.S. children living in working families would only receive a token increase of $75 or less from the proposal; 1.1 million of these children are living in deep poverty. In Minnesota, 134,000 children live in working families that would receive only a small increase; about one-quarter of those children live in rural counties.

senate-ctc-proposal-cbpp-graph

The Child Tax Credit proposal also takes the credit away from about 1 million children across the country. Currently, many immigrant workers who do not have a Social Security Number (SSN) use what’s called an ITIN to file their taxes. Workers filing with an ITIN are generally subject to the same tax rules as those filing with an SSN and are also eligible for the Child Tax Credit. However, the Senate would eliminate the credit for children without an SSN. Almost all of the children affected are Dreamers, children who came to the United States at a very early age and who often know no other country as their home.

As in many states across the country, with a tightening labor market and a projected labor shortage on the horizon, Minnesota’s economic growth increasingly depends on adding more people to our workforce. We will increasingly rely on immigrants and refugees to fill vital roles as employees, business owners, and entrepreneurs. In addition, income supports like refundable tax credits are linked to better school performance and higher college enrollment. But taking away the Child Tax Credit would not only increase hardship immediately for these families, it would also make it less likely that these immigrant children will be able to reach their full potential in school and later in the workforce.

The Child Tax Credit expansion, while touted as a boon for low- and middle-income families, actually does little to make our tax system work better for folks working to make ends meet. Furthermore, the proposed improvements to the credit cannot overcome the Senate tax bill’s overall problems. Its benefits still primarily go to the highest-income households and profitable corporations, and the plan would increase the deficit by more than $1 trillion over the next decade, which will almost certainly lead to cuts to health care and other essential services.

-Clark Goldenrod

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State budget adds to an uncertain future

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 $8.1 million
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

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