Newly passed law may bring the budget “tails” into focus

Naturally, there is a lot of focus these days on how we are going to solve the budget deficit for FY 2010-11. But it is important to remember there is another large deficit waiting for us in the following biennium – the so-called “tails.” The February Forecast projects a $5.1 billion deficit for FY 2012-13, or $6.5 billion if we include the impact of inflation.

So, we have a $6.4 billion deficit now and a $5.1 billion deficit later. In other words, we aren’t going to grow our way out of this problem. We are in this situation for the long haul.

And it could be worse than predicted in the future. That’s because the planning estimates for the future biennium assume that Minnesota’s economy will perform at the national average. That’s a fair practice – it’s far more difficult to model a state economy that far into the future than it is the national economy. But Minnesota’s economy has been under-performing the national economy over the last two years. That means those future projections may turn out to be too optimistic.

This becomes a significant concern because it’s very likely that a huge portion of the solution to the FY 2010-11 deficit will be one-time. The one-time money on the table includes potentially $2.6 billion from the federal stimulus package, plus the $1.3 billion from shifting education funding and roughly $1 billion from selling bonds that was in the Governor’s budget. That means more than two-thirds of the solution to the deficit could be a one-time fix.

If we rely so heavily on one-time solutions this time around and Minnesota continues to under-perform the national economy, we could be facing another big budget mess in two years.

Recently, however, the Governor signed a bill that could make things interesting. The new law requires the Governor to propose, and the legislature to enact, a budget that is balanced through FY 2012-13.

This isn’t a new idea. Governor Arne Carlson regularly followed the practice of balancing the budget over four years. And earlier this year, the State Budget Trends Study Commission recommended the Governor and legislature institute a policy of passing a budget that is structurally balanced for the current and following biennium.

 However, if policymakers truly attempt to meet this challenge, it will mean making some very tough decisions about revenues and expenditures starting in the FY 2010-11 biennium. A heavy reliance on one-time fixes won’t do the trick. Hopefully, this bill will prompt a more honest look at the long-term consequences of the choices we make to solve the budget deficit.

-Christina Wessel

About Christina Wessel

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