Dr. Tom Stinson, Minnesota’s state economist, told the Senate Finance Committee this morning that the release of the February Forecast has been pushed back to Tuesday, March 3 to capture the most current economic information. Also, the forecast will not include any direct payments the state would receive from a federal economic stimulus package unless that package is passed into law prior to the release of the forecast.
There are a couple of other important points Dr. Stinson has been highlighting in recent talks that underscore how very cautious policymakers must be as they work to solve the budget deficit (check out Katherine’s blog on Dr. Stinson’s presentation at a Minnesota Budget Project event earlier this week):
- Back in November, the forecast predicted a 1.0 percent decline in real GDP in 2009. There was also a more pessimistic scenario that predicted a 2.4 percent decline…that scenario was nick-named “meltdown.” Well, the recently released January Economic Update now predicts a 2.5 percent decline in Real GDP. Meltdown.
- The January Economic Update shows that state revenues for November and December came in below forecast projections – even though our expectations were significantly ratcheted down in the November Forecast. We will see the impact of these lower revenues on the size of our deficit when the February Forecast is released.
- Capital gains is an area to watch carefully. I blogged on this back in December, but it’s worth reiterating. Our state forecast predicts a 30 percent decline in capital gains…but the Congressional Budget Office is predicting 40 percent and other states are predicting 50 percent. If our forecast is wrong, we could see a sudden deficit of $200-300 million that would need to be resolved by June 30. Unfortunately, we won’t find out if we are wrong until May.
The lesson: we should expect a February Forecast that predicts higher budget deficits and we must keep money in our budget reserves to cover the possibility of additional deficits before the end of the biennium.
The good news: we are not facing another Great Depression, Dr. Stinson assures us. Back then, it took until 1940 for us to get back to the same level of economic output we were experiencing in 1929. While we are probably in the midst of the worst recession since World War II, this isn’t a depression.