Minnesota’s Budget Deficit Turns to Surplus in Latest Forecast
On Tuesday, Minnesota’s budget office released new figures showing the state will have a healthy surplus in the current biennium. The news will likely ratchet up pressure on lawmakers to craft a financial relief package for low-income residents and hard-hit industries.
For the 2020-21 biennium, Minnesota will have a surplus of $641 million, according to the state’s department of budget and management. Officials chalked up the surplus to “higher general fund revenues and lower expected spending.”
That’s a fairly significant turnabout from the state’s projections in May, when officials expected a $2.42 billion deficit due to the coronavirus pandemic and subsequent economic fallout. So, why such a dramatic difference in projections? In a budget document released Tuesday, state officials noted that the forecasts for “all major tax types are higher than in May.”
“So far in FY 2021, actual net general fund revenues are $805 million (12.5 percent) higher than projected in May,” officials said. “These higher revenues raise the base—or starting point—for our forecasts of several tax types.”
And though there’s been a huge loss of jobs in the state, it’s primarily affected lower-income workers. That lessens the effects on the state’s tax revenue. Since February, the state has lost 184,000 jobs.
“The uneven impact of employment and wage losses during the pandemic-induced economic downturn has affected the way we construct our income tax forecast,” budget officials said. “In addition, concentrating wage losses among taxpayers with lower marginal effective tax rates reduces the income tax revenue loss arising from a given reduction in income.”
Still, there may be some budgetary woes down the line. In the next biennium running from fiscal years 2022 to 2023, the state faces a $1.273 billion budget shortfall.
But for the 2020-2021 biennium, Minnesota still has a more than $2.3 billion budget surplus.
Tuesday’s budget forecast came as welcome news to the Minnesota Chamber of Commerce, and no doubt countless businesses across the state.
“The good news of this forecast means that the legislature can take immediate steps to help stabilize small and medium-sized businesses and jumpstart economic recovery throughout the state,” said Minnesota Chamber president Doug Loon in an email.
Last week, Gov. Tim Walz said there’s “bipartisan momentum” toward a state-level financial relief package.
And additional financial relief from the federal government may be on the way. On Tuesday, a bipartisan group of legislators introduced a $908 billion proposal, CNBC reported. That plan calls for a $288 billion boost to the Paycheck Protection Program, along with another $180 billion to increase weekly unemployment checks by $300. The top two lawmakers in each chamber still haven’t had formal talks on a stimulus plan since Election Day, according to CNBC.