Minnesota ended the recent budget year much stronger than expected, according to preliminary analysis from Minnesota Management & Budget (MMB).
MMB’s July Revenue and Economic Update finds that state revenues have come in above expectations. The state’s 2015 fiscal year ended on June 30, and revenues for the year came in $555 million, or 2.8 percent, higher than projected in the February Forecast. This is mostly due to higher income tax collections from capital gains and other non-wage income. The Update notes that these are preliminary figures that could change when they are finalized in August.
While the revenue picture in Minnesota shows good news, the story for the national economy is a little different. Economic growth got off to a slow start this year, due to several temporary factors including harsh winter weather. Now, the national economy is picking up as indicated by a tightening labor market and higher consumer confidence, but overall growth for 2015 is now expected to be lower than projected in the February Forecast. Looking to 2016 and 2017, the economy is expected to pick up, growing annually by 3.1 and 2.7 percent, respectively.
The economic forecasters are fairly confident in their projections, and assign a 70 percent probability to their baseline economic forecast. They give a 15 percent chance for a more pessimistic scenario in which economic growth stalls; and a 15 percent chance that the economy will be even stronger than the baseline predictions, due to better than anticipated productivity and foreign growth later this year.
The forecast also notes the effect of global prices and the rising value of the U.S. dollar on Minnesota’s Iron Range. A strong dollar makes foreign steel less expensive, which has encouraged imports. As a result, there has been a slowdown in Minnesota’s taconite mining industry, affecting more than 1,000 workers directly in recent months, or about a quarter of the state’s mining jobs. It also affects jobs in many supporting industries.
The 2015 Legislative Session recently ended with $865 million of the state’s projected $1.9 billion FY 2016-17 surplus unspent. We’ll get an update on that available balance, taking into account both state revenues and expenditures, when the state’s November economic forecast comes out. If the current trend of higher than expected revenues continues, that available balance would likely grow. However, the predictions of slower economic growth could exert some downward pressure. One-third of any positive balance for FY 2016-17 measured in the November Forecast will go into the state’s budget reserve, further building up this important resource so that the state will be able to meet the needs of Minnesotans during the next economic downturn.
Today’s good budget news indicates that the next legislative session will likely provide another opportunity to ensure more Minnesotans benefit from the improving economy.