Minnesota Economic Forecast: Partly Cloudy With a Chance of Federal Tax Relief

All seemed to agree more data is needed for clearer picture

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Gazelka Daudt
(L-R) House Speaker Kurt Daudt, Senate Majority Leader Paul Gazelka (Preya Samsundar/Alpha News MN)

ST. PAUL, Minn.- Multiple Minnesota leaders discussed the budget forecast in Minnesota today, including Governor Mark Dayton, Commissioner Myron Frans, Minnesota Management and Budget, and leaders of the Minnesota Legislature.

Frans started out by saying that Minnesota is projected to have a negative balance of $188 million in the 2018-2019 biennium, with further ominous news of a $586 million deficit for 2020-2021. For the last 4 years Minnesota has run a budget surplus, making the deficit somewhat surprising.

“Fortunately we have time for Gov. Dayton and the Minnesota legislature to come together and deal with this projected deficit,” Frans said.

Frans attributed much of the lower amount of state income to a lower growth rate within Minnesota and lower returns from Minnesota’s income tax. Finally, Minnesota’s spending increase relative to former projections has also contributed to an increased deficit in the state. Educational spending saw big increases, while investment in stabilizing the healthcare market also majorly increased spending.

One piece of critical data that has not gone into the projection presented was the need for legislative appropriations.

“Appropriations are not law yet so they couldn’t be added into projections. However, if the legislature passes $114 million in appropriations we can expect a $302 million deficit.”

Frans hedged his stance by saying this was only a projection and certain factors could change the outcome greatly.

State economist. Dr. Kalambokidis says Real GDP growth weakened slightly since February 2017, though she pointed out many sectors expanded substantially. There was also less than expected growth in wage income from February projections.

Governor Dayton attempted to gloss over doom and gloom of the budget office, indicating there was a lot of room for the budget to change. Dayton did not see the projections as evidence of a serious economic downturn.

“My counsel is to wait,” Dayton proclaimed about the projections, “I am predicting some moderate corrections in the February budget predictions.”

Members of Democratic legislature laid most of the blame at the feet of the GOP controlled House and Senate.

“Nothing I could have disagreed with, but we just don’t have the resources to deliver on everyone’s wants and needs,” said Senate Minority Leader Tom Bakk pointed out, “That’s a part of leadership, to not overcommit on the spending side.”

Republican Senate Majority Leader Paul Gazelka indicated that he believed that people should wait till February for a more mature prediction.

“This projection is obsolete on arrival,” Gazelka said, “We are very proud of the tax relief we obtained for seniors, for farmers, and a $500 annual tax credit for students in repaying debt.”

Gazelka also was quick to point out that it will be important for the future for Minnesota to look at its tax structure and make sure it has conformity with federal tax laws, especially after the most recent federal tax overhaul. Gazelka critiqued Bakk’s position on federal conformity saying that it will not be necessary that Minnesota conform on every aspect.

House Speaker Kurt Daudt called the budget overly pessimistic.

“I agree with Dayton that there was too much spending. In past Democrat controlled state legislatures we saw an 11 percent increase in spending,” Daudt said, “We fought the governor and were able to get only a 9 percent increase. I also agree with the governor that this report is not completely accurate, and is subject to many changing factors.”

Daudt was also optimistic about tax relief at the federal level with likely passage of the new tax legislation.

“If projections were made with the amount of tax relief seen in the federal tax bill, we would most likely see ourselves in a surplus,” Daudt explained, “at the time, people making the decision on these projections didn’t see federal tax reform as likely, but now it seems likely.”

Jim Knoblach, Chair of the Minnesota Ways and Means Committee, indicated that Minnesotans should remember that the state will be getting money back when it comes to the Children Health Insurance Program (CHIP), which could play an important role in reducing the deficit.

House Majority Leader Joyce Peppin was optimistic of Minnesota’s future.

“Lowest unemployment in 17 years and largest GDP growth,” Peppin stated, “In all the categories, Minnesota is doing really well.”

 

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