OK, now we know the numbers. But as we consider the figures that were thrown out at today’s release of the November Forecast, let’s not lose sight of the fact that we aren’t just fixing a budget, we are responding to prolonged economic troubles. As we mentioned yesterday in our press release, the challenge facing policymakers is to approach the situation with bifocals – crafting a budget that recognizes the immediate needs of residents still struggling in a weak economy and makes the investments critical to the state’s economic future.
So what are the numbers?
- There is a $399 million surplus for the current biennium, FY 2010-11. That’s good news – no unallotment or short-term borrowing will be necessary.
- There is a $6.2 billion deficit for the next biennium, FY 2012-13 (up from the $5.8 billion projected at the end of the 2010 Legislative Session). That equates to about 16 percent of the state’s total general fund budget. If we add the cost of inflation, the size of the deficit increases by an additional $1 billion.
On a positive note, the state’s economist Tom Stinson pointed out that employment growth in Minnesota is above the U.S. average and is expected to stay strong. However, even at this rate it will still take another two years for the state to return to pre-recession employment levels. Economic growth projections have been lowered, and that will mean lower than expected revenues from income, sales, and corporate taxes for the foreseeable future. And it also means that many Minnesota families will continue to face hardships.
Despite the delayed economic recovery, the Forecast still projects that general fund revenues will grow by five percent from FY 2010-11 to FY 2012-13. General fund spending, on the other hand, is projected to grow by 27.5 percent. But before anyone jumps on that number, it’s important to understand most of that figure isn’t new spending. Here’s what I mean:
- In FY 2010-11, we received $2.3 billion from the federal government that temporarily replaced state funding for education and health care services in Minnesota. That federal stimulus money won’t be there in FY 2012-13.
- The state shifted $1.9 billion in K-12 education payments from FY 2010-11 into the FY 2012-13 biennium.
- There were $660 million in one-time reductions (ratified unallotments) made just for FY 2010-11 that don’t continue in FY 2012-13.
When all is said and done, the true growth in spending from this biennium to the next is 6.6 percent – much closer to the projected five percent growth in revenues.
The issues facing the state are significant. For example, there are at least two decisions facing policymakers that will have an impact on the state’s budget situation.
- The November Forecast assumes the state will repay most of the K-12 payment shift in FY 2012 at a cost of $1.4 billion. Delaying that repayment, or a portion of that repayment, would reduce the size of the deficit. However, it would also continue to cause hardship for many school districts waiting for those dollars.
- The next Governor can “opt-in” to early expansion of Medical Assistance by January 15. which would provide health care coverage for low-income adults without children that lost their coverage earlier this year and bring in more than $1 billion in federal resources. Opting-in would also reduce the financial pressures on MinnesotaCare, which offers affordable health insurance for working Minnesotans. If the state fails to opt-in to early expansion of Medical Assistance, MinnesotaCare faces a large deficit which could trigger cuts in eligibility for the program. Not opting in would also reduce the general fund deficit by approximately $384 million.
If policymakers are going to successfully meet the challenges ahead, they’ll have to find a way to cooperate and compromise. As the experts pointed out at today’s press conference, all the easy cards have been played (one-time resources, reserves, budget shifts, etc). Now what’s left are the hard decisions. We’ll be working to make sure they are wise decisions.
If you want to read the Forecast documents for yourself, they are available on the Minnesota Management & Budget website.