In normal years, the state of Minnesota makes changes to taxation and spending based on estimates released in February. But the coronavirus pandemic left the work of economists and state accountants behind a month after it was released.
So an emergency update – based on minimal data and the best educated estimates of what the economic impact of COVID-19 is on state finances – was released on Tuesday by the country’s Office of Management and Budget.
That’s bad, as expected. But it depends on the people who read it – and their politics – it’s not too bad or catastrophic. The $ 1.5 billion pre-COVID surplus has turned into a post-COVID deficit of $ 2.42 billion, $ 4 billion turnover in 10 weeks.
First, the numbers:
- Minnesota’s current budget for two years from 1 July 2019 to 30 June 2021: $ 48.3 billion
- New expenditure since the budget was adopted: $ 550 million
- Total new expenses that can be reimbursed from more than $ 2 billion that the state received from the federal CARES Act: $ 530 million
- Projected income surplus in February, 2020: $ 1.5 billion
- Projected income deficit in May 2020: $ 2.42 billion
- The amount in the state rainy day savings account: $ 2.36 billion.
- Reserve cash: $ 350 million
“There’s a reason we call it a rainy day fund. It’s a rainy day,” said Minnesota Management and Budget Commissioner Myron Frans. “And, unfortunately, today is a rainy day.”
The funds can be used to help the country “overcome this economic downturn and give policy makers – governors and legislative bodies – time to consider options for maintaining critical services and supporting increasing needs in the face of declining incomes.”
Minnesota can get into rainy day accounts once there is an official deficit projection, as released this Tuesday. It can be used to pay for the existing budget and is carried out without further action by the Legislature.
But Walz and his financial commissioner taught caution when using savings accounts. He said his condition could worsen, and while he and other governors sought further assistance from the federal government, such assistance was far from certain.
That reserve, “is one of the reasons Minnesota’s fiscal health is one of the strongest in this regard and puts us better at getting out of it,” Walz said. “But there are … decisions to be made. There will be a joint sacrifice.” Instead of thinking that he and the Legislature will improve the budget before the regular session ends on May 18, Walz said he hoped lawmakers would need to return over the next few months to make additional adjustments.
“This is not wrong and finished and left,” he said. “There is uncertainty in how long this lasts, there is uncertainty in how people respond to reopening and social distance, there is uncertainty in how quickly we reach therapy and vaccines.”
The Governor suggested that the country or nation not go through the worst of the crisis.
“We don’t,” he said. “As a nation, our peak will still come. I would anticipate that this could deepen the deficit and take this step at the time. It doesn’t just throw away your budget reserves and you even today because tomorrow isn’t there. “
The state has received $ 2.2 billion directly from the federal CARES Act with another $ 900 million for state social and health services, emergency service colleges, public school districts and transit agencies.
The effect of the dollar was clear in the estimates. Even though the state paid more in medical aid payments, it ended with a positive impact of $ 160 million on the budget because federal funds more than offset the increase in demand.
Even so, Frans said they saw various scenarios to reduce spending.
“We will look everywhere. That is our goal,” said Frans.
Reaction from MPs
The reaction from legislators and interest groups is predictable, and sets the stage for the last two weeks of the session. Republicans and conservatives call for cost savings and oppose tax increases.
“The country will have less money next year. Approximately $ 4 billion. It’s on the shoulders of the legislature to be managed, “said Senate Majority Leader Paul Gazelka, R-East Gull Lake. “We do everything we can to limit the negative financial impact of COVID, but it’s clear that holding patterns are not enough.
“In the end, we must be able to look into the eyes of small business owners and laid off workers and tell them, the state government also sacrifices. Empathy is not enough. Actions speak louder than words, “Gazelka said.
GOP House Minority Leader Kurt Daudt echoes that thought. “Today’s budget update shows that our state faces the same financial problems facing families and businesses. Democratic Governor in Jakarta New York and Wisconsin has advanced with billions of budget reductions to react to the COVID crisis, and it’s time for Governor Walz to do the same. ”
Minnesota Jobs Coalition executive director John Rouleau called for a salary freeze for civil servants. “When more than half a million Minnesotus apply for unemployment, workers have hours of work and pay cuts and Minnesota is spiraling toward a budget deficit, the state government must tighten his belt. We are all together. “
The reforms also invite Republicans to call for a more aggressive reopening of the economy as a way to reduce demand for social services and unemployment insurance and increase tax collection. “Most importantly, we need to open up the economy to revenues that fund important government services,” Gazelka said.
Meanwhile, democrats and liberals say the forecast shows that reserves are in good condition and that cuts must be avoided. Some also blame tax cuts in the past because they play a role in deficits.
“While we expect the country’s financial picture to deteriorate, I am relieved that the size of the projected deficit is not greater,” said House Speaker Melissa Hortman, DFL-Brooklyn Park. “Investment is needed to make Minnesota residents safe in their housing, help small businesses, facilitate distance learning and telemedicine, and to ensure we have the workforce we need to provide care for the elderly and people with disabilities. Federal assistance allows us to make this necessary investment, while our state savings will cover the expected decline in income. “
Senate Minority Leader Susan Kent, DFL-Woodbury, agreed that new spending should be considered. “Now is the time to join together to help our neighbors by passing forward-looking laws to ensure each of us can take care of our families, get a fair return to our work, and protect those who protect us during this health emergency. Public. “
Advocacy groups affiliated with DFL suggest that tax increases for businesses and rich people should be considered before cutting. “Minnesota has been through previous difficult economic times, including the recent recession, by uniting and requiring the richest companies and individuals to pay a fair share in taxes,” said Elianne Farhat, Minnesota’s executive director of TakeAction. “We can get past this and come out stronger, but day after day Republicans pass trillions of dollars in tax cuts for the richest 1% must end. We deserve a government in Minnesota that works for the people, and it starts with a fair tax system. “
Walz landed somewhere in between, at least in his reaction to Tuesday’s update. The rainy day account helps, but it shouldn’t be dried out because the condition can get worse. He also said he was open to savings and adjustments to the current budget and did not rule out reductions in state employment through layoffs or leave.
But Frans noted that the state could eliminate all employees and save only 7 percent of the state budget. Most went to public school districts and for medical assistance and social service programs.
Two weeks ago, state economist Laura Kalambokidis told the Senate committee that trying to update state estimates was like trying to fly planes while building them. That’s because data that is often relied upon to estimate the economic future is not available or incomplete. The best example of this is tax collection which often quickly sees activities but which has been postponed as a way of helping businesses and individuals cope with crises.
Tuesday he said one difficult piece of data was the use of unemployment insurance in Minnesota. Since March 15, 600,000 Minnesotans have submitted benefits, far exceeding all requests during the 2007-09 Great Recession.
“Shocks to the U.S. economy from this pandemic are unprecedented in post-war modern history and the economic outlook is very uncertain and fluctuating,” he said. The extent of the spread of a pandemic, the development of treatments and vaccines, federal financial support, the length of closure and the desire of consumers to continue spending are unknown variables.
The country has also received updates from its national forecast vendor, IHS Markit. The estimate predicted a recession that lasted three calendar quarters and a decline in gross domestic product – the most common measure of economic output – of 5.4 percent. Just three months ago, IHS Markit said the national economy would grow by 2.1 percent. The main reason for the decline is that consumer spending, which accounts for two-thirds of GDP, has been hit hardest by fixed orders at home and closing shops, restaurants, theaters and sports venues.
However, this estimate is based on predictions that the spread of the virus will peak in early summer and then disappear. If that happens, economic growth can begin to recover by the end of 2020, forecasters predict, with growth reaching 6.3 percent in 2021 and returning to February 2020 levels by mid-year. But that will not catch up to where there is no pandemic, Kalambokidis said.
“We have never returned to the dotted line,” he said, pointing to a graph showing pre-COVID growth. “A number of economic activities just disappear.”
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