Policymakers shouldn't bank on an improving economy

The budget proposals presented by the Governor, House and Senate all rely heavily on the use of budget reserves and other one-time funds to solve the deficit in the current biennium. Unfortunately, that just pushes the problem to the next biennium. Under the supplemental budget proposals currently under consideration, the Governor leaves a $693 million deficit for the FY 2010-11 biennium, the Senate leaves $761 million and the House leaves $549 million. Then add to that an estimated $1 billion to cover the costs of inflation.

The Governor reasoned when he presented his budget that the economy could improve, thus decreasing the size of the future deficit. But the evidence points against that being a smart gamble:

  • U.S. unemployment numbers for March came out earlier this month – and the news is not good. The number of unemployed people in the United States rose by 434,000 in March. With 7.8 million persons out of work, total unemployment has now increased to 5.1%. And remember, we have just experienced the longest “jobless recovery” in the wake of the 2001 recession.
  • The latest job figures from our state’s Department of Employment and Economic Development – just released today – aren’t good either: Athough employers added 5,200 jobs in March, the unemployment rate still increased to 4.7%. And Minnesota has only added a total of about 17,200 jobs since February of last year, that’s an increase of just 0.6%.

The current forecast assumes that the national economy will experience a mild recession for the first half of 2008, then improved growth in the last half of the year, followed by extremely slow growth in early 2009. The above data suggest that the economy is likely to fare at least that bad, if not worse.

-Christina Wessel

About Christina Wessel

Christina served as the Minnesota Budget Project's deputy director until January 2014.
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