Positive budget forecast offers chance for broader prosperity, greater fairness in tax system

Today’s Minnesota November 2015 Budget and Economic Forecast shows positive news for two budget cycles, and shows once again that Minnesota has turned the corner after a decade of frequent deficits and cuts to public services.

Policymakers should focus on investing in shared prosperity and making our tax system fairer and more sustainable as they put together the supplemental budget for FY 2016-17.

The forecast projects a $1.2 billion positive balance for the current FY 2016-17 biennium. That’s after $594 million is transferred to the state’s budget reserve as well as a small repayment to state environmental funds.

The forecast also gives us a look into the upcoming FY 2018-19 biennium, where there is another positive balance projected of $2.0 billion. Taking into account the impact of inflation reduces this figure to $352 million.

The positive balance in today’s forecast is due to lower than anticipated spending paired with higher than expected revenues:

  • Most of the lower spending is due to reduced costs in Medical Assistance, from lower cost of care and savings from the state’s competitive bidding process. The lower spending in Health and Human Services more than offsets some higher expenses in E-12 Education, due partially to student enrollment growth.
  • Higher than expected revenues are due to higher sales and corporate tax collections that offset slightly lower than expected income tax collections.

The forecast shows that the national economy grew more slowly in FY 2015 than was anticipated in the February Forecast, with annual growth rates between 2.6 percent and 2.9 percent expected through FY 2019. The U.S. economy has seen falling unemployment for workers across age, gender, education level and racial groups. However the rate of people working part time for economic reasons is high, which means that some workers are not able to find the full-time jobs or hours they need.

Minnesota’s economy continues to perform better than the national economy, with low unemployment and a tightening labor market. But too many Minnesotans are being left behind, and the state’s future economic success depends on broader participation in the workforce. Our tax and budget choices should prioritize strategies that expand economic opportunity for working Minnesotans across the state and allow them to find the jobs they need.

Minnesota can’t afford to have any workers on the sidelines. Making affordable child care available to more Minnesota families will allow parents to work and employers to get the employees they need, while children can thrive in stable environments. Increasing funding for Basic Sliding Fee Child Care Assistance and expanding the Child and Dependent Care Tax Credit are two important ways to address Minnesota’s child care challenges.

Supporting Minnesotans’ work efforts should also be a priority in our tax policy. Improving the state’s Working Family Credit would help people working at lower wages to support their families, and such tax credits are shown to get children off to a stronger start in life. It also would make more progress so that low- and moderate-income Minnesotans don’t pay more than their fair share in taxes.

Another way to improve the number of Minnesota workers with good jobs is to expand access to earned sick and safe time, so that 1.1 million Minnesotans won’t continue to lose wages or even their jobs when they need to stay home to care for themselves or a family member.

What we don’t need are large tax cuts. Minnesota’s own history shows that when we cut taxes too far in good times, it makes things worse in the next economic downturn. And we can look to other states, like Kansas, to see that large tax cuts don’t work as an economic development strategy.

The forecasters are confident in their projections. Global Insight, Minnesota’s economic consulting firm, assigns a 65 percent probability to their baseline economic forecast. They assign a 20 percent probability to their more pessimistic scenario where global markets are not stabilized resulting in weaker economic growth, and a 15 percent probability to an optimistic scenario where better than expected household formation and productivity strengthen the U.S. economy.

The next look at budget numbers that policymakers will use to form the supplemental budget for FY 2016-17 will be released in the February forecast.

-Clark Biegler

About Clark Biegler

Clark Biegler is the Minnesota Budget Project's policy analyst.
This entry was posted in Budget Process, Economy, Taxes and tagged , . Bookmark the permalink.

Leave a Reply