November Forecast-Governor Dayton announces that the State raked in an extra $1billion from Minnesota’s families.

Today the Office of Minnesota Management and Budget (MMB) announced that the state amassed $1.037 billion more from Minnesota families than is projected to be spent in the 2016-17 biennium.  This amounts to an extra 2.6% of the state’s $39,371 billion revenue.

This expected state government windfall is the result of overtaxing the state’s residents in 2013-14.  

Looking past this biennium to the next, we can see that there will already be problems for the Governor and the Legislature to tackle with future budgets.  MMB adjusted future forecasts for a weakening US and Minnesota economic outlook. Minnesota’s GDP will continue to grow, but at a much more modest level than was previously forecast.  Today is the time for caution and careful planning in evaluating spending priorities for every dollar the state takes from Minnesota’s families.

It should be concerning to citizens when political leaders dismissively discount this billion dollar overreach. In interviews he’s given, Senate Majority Leader Tom Bakk, (DFL Cook) thinks that “inflation” will simply eat up the increase in revenue.  Either he thinks inflation will skyrocket or he’s talking about increased spending already passed into law in the last few years—spending with automatic increases built in which will keep government and the cost of government growing. 

For example, on page 60 of the full forecast report the Non-Health Care related part of Health and Human Service spending “is expected to grow $118 million (4.4 percent) from FY 2014-15 to FY 2016-17. The biggest driver of this change is MFIP childcare assistance, which is forecasted to increase by $56 million (38 percent) in the next biennium.” That will be quite a “cost driver” in upcoming budgets and HHS is already by far the largest part of the State’s budget.

Added to that, there are programs that were not fully paid for at the time they were mandated into law.  In order to comply with these laws, legislators will have to find the money, resulting in bigger and more expensive government

The stadium reserve account shows that in the next biennium the budget reserve will drop from 27 million to 1 million, which is worrisome since backup funding is the General Fund.  We have always been strongly opposed to the public dollars being used to fund this private business, regardless of the public’s support of the Vikings team.

The new forecast also points out that personal income in Minnesota grew 27% slower than the national growth rate in 2014.  Prior forecast models projected Minnesotan’s to outpace the national growth in Wage and Salary Disbursements.  This forecast sharply reduces wage growth to now lag behind the national growth rates.  Expected growth in Minnesota wages were reduced 22% for 2014, 17% for 2015 and 12% for 2016.  Minnesota wages are now expected to grow at 20% less than the nation as a whole.  (p. 31, 47,chart.)

While Minnesota continues to benefit from lower unemployment than national rates (MN-3.9% US-5.8%), the forecast points out troubling trends proving that the state economic outlook has weakened since it was last prepared in February:

  • State GDP growth rate estimates were reduced 18%.
  • Labor force participation continues to wane dropping to 70% since the great recession.
  • Household formation has dropped to one third of the long term trends adversely affecting housing prices and construction jobs. The report states: ‘an increasing share of young adults not forming households for economic reasons, like poor wage growth and onerous student loan debts.”
  • Corporate tax revenue were about 3% lower than the Feb forecast.

The danger of a report like this is that it is easy to postpone taking action.  But when Minnesota’s families continue to see marginal opportunity for prosperity, tough decisions have to be made.  To create the right conditions for future growth we need thoughtful effective leadership with the foresight to see past the good news for government to the worrisome news for the rest of us.