Support the Minnesota Budget Project on Give to the Max Day

November 16, 2011

It’s Give to the Max Day, when thousands of Minnesotans say a special thank you to the nonprofits they value. Please add the Minnesota Budget Project to your list of donations today. Your gift will help us continue our work advocating for tax and budget decisions that invest in Minnesota and build a prosperous economic future.

Our work takes on special importance in these difficult economic times. The Minnesota Budget Project is out in front calling for a balanced approach that strengthens the building blocks of economic growth: high-quality schools, strong communities, educated workers and opportunities for all Minnesotans to succeed.

Here’s a quick reminder of what your contribution to the Minnesota Budget Project means:

  • You’ll support the timely non-partisan analysis of budget and tax debates that you count on at Minnesota Budget Bites.
  • You’ll support our work to stand up for balanced solutions that include fairly raised revenues. You’ll see us testifying at legislative hearings, talking to the news media, and ensuring that those whose voices aren’t always heard can be part of the debate.

Please make your tax-deductible contribution today!

Your gift today can work even harder because it makes us eligible for $1,000 prizes drawn every hour. Each donation to us – no matter at what time or how often – gives us one more chance in the drawing.

Our work depends on donors like you to step up on Give to the Max Day and year-round. Thanks for your support today!

-Nan Madden

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President Obama’s proposed jobs bill would support jobs, economic growth in Minnesota

September 27, 2011

The American Jobs Act proposed by President Obama could create or support more than 26,000 jobs and inject at least $1.5 billion into Minnesota, according to estimates by the Obama Administration. Those jobs include teachers, police, firefighters, engineers, construction workers and more. The Jobs Act is a package of tax cuts for employers to provide incentives for hiring, infrastructure investments, assistance to those looking for work, and tax cuts for individuals.

The proposed strategies include some of the most effective ways to support economic growth. The Center on Budget and Policy Priorities reinforces in a recent statement:

We need to boost the economy in the short run by enacting legislation that would, for example, extend unemployment insurance benefits and the temporary cut in payroll taxes beyond their scheduled expiration at the end of this year, provide more assistance to states to temper their need to impose more layoffs and cut more spending to balance their budgets, and create programs that would put people back to work on projects such as renovating and modernizing America’s schools. Such temporary policies would help boost growth and employment now without adding significantly to long-term deficits and debt.

Some of the main components of the bill, and the impact on Minnesota estimated by the Administration, are:

Tax cuts for employers

  • Payroll taxes would be cut in half for employers’ first $5 million in wages. In Minnesota, an estimated 120,000 employers would benefit from this cut.
  • Employers who increased their payroll (by adding new workers or increasing the wages of current workers) would pay no payroll taxes on up to $50 million of the increased payroll.
  • Employers would receive tax credits of $5,600 to $9,600 for hiring unemployed veterans, and a $4,000 tax credit for hiring long-term unemployed workers.

Infrastructure investments

  • The bill invests $50 billion in highways, transit, rail and aviation. The highway and transit portion alone would provide an estimated $608 million in Minnesota and support a minimum of approximately 7,900 jobs.
  • Layoffs of up to 280,000 teachers nationwide would be prevented. The bill would also support hiring thousands more teachers and keep police and firefighters on the job. Minnesota would receive an estimated $504 million. These funds would support up to 6,900 teacher and first responder jobs.
  • At least 35,000 public schools nationwide would benefit from school infrastructure investments. Minnesota’s share totals $275 million and would support up to 3,600 jobs.
  • Hundreds of thousands of vacant and foreclosed homes and businesses would be rehabilitated. Minnesota could receive approximately $101 million, and could apply for more through a competitive bidding process.
  • Facilities at community colleges would be modernized. Minnesota could receive $88 million.

Pathways back to work

  • The Unemployment Insurance (UI) system would be reformed to help the long-term unemployed transition back to work. An estimated 71,000 Minnesotans are among the nation’s long-term unemployed.
  • Unemployment Insurance benefits would be extended, preventing at least 13,400 unemployed Minnesotans from losing their benefits during the first six weeks.
  • Low-income youth and adults would access work opportunities or obtain job training in growth industries through the Pathways Back to Work Fund. This could place 6,500 Minnesota youth and 1,700 Minnesota adults in new jobs.
  • Hiring discrimination against the unemployed would be prohibited.

Tax cuts for workers

  • The payroll tax cut passed in December 2010 would be expanded to cut workers’ payroll taxes in half in 2012. A typical Minnesota household with an income of around $56,000 would receive a tax cut of approximately $1,740.

When releasing the Jobs Act, President Obama emphasized that the bill would not add to the federal deficit. He proposes to pay for the bill through tax changes including new limits on itemized deductions for high-income Americans (individuals with incomes above $200,000 a year and families with incomes above $250,000 a year), by closing tax preferences for the oil and gas industries, and by changing the depreciation rules for corporate aircraft.

While it is highly unlikely that Congress will approve the entire bill, discussions have begun on Capitol Hill to determine whether agreement can be reached to pass parts of the bill. The continuing weak economy and high unemployment increase the pressure on the Administration and Congress to act.

-Steve Francisco


State revenues on track with forecast so far

January 14, 2010

Earlier in the month, I was asked what the chances are that the February Forecast would be worse than the November Forecast, which estimates a $1.2 billion shortfall in the current FY 2010-11 biennium and a projected $6.6 billion deficit for FY 2012-13 (including inflation). I suggested that we needed to watch out for things like holiday sales or end-of-year income figures coming in lower than projected, or news hinting that the future economy would be even worse than predicted. Remember, a bad economy doesn’t necessarily make the February forecast worse – only a bad economy that is worse than we previously thought.

Minnesota Management and Budget has released their January 2010 Economic Update, a quarterly report that provides a snapshot of how state government revenues and the state’s economy are doing, compared to the most recent forecast. It indicates that, so far, state general fund revenues are pretty much on track, although there is still more significant information to come that will inform the February Forecast.

  • State general fund revenues are consistent with the forecast. Revenues since the forecast’s release (November and December 2009) are down $1.5 million, or 0.06 percent less than forecast. Because of the timing in which sales taxes are remitted, the Update reminds us that these figures only include the November part of the holiday shopping season.
  • The future economy is going to be bad, but no hints yet that it will be even worse. The Update says that there are “only modest changes in the baseline forecast for 2010 and 2011 since November.” So it’s good that it is not getting worse, but remember the baseline forecast is not rosy. A pertinent quote from the Update:

[W]hile this year’s economic outlook is far less frightening than 2009’s, economic conditions are not expected to return to normal in 2010. The U.S. unemployment rate is expected to remain above ten percent for the entire year and although some job growth is projected, it is only the first step in replacing the nearly 8 million jobs that have been lost since late 2007.

So, at least for now, no hints that the February forecast will get substantially worse. However, MMB always warns us against reading too much into a few months of data. Global Insight, the state’s economic consultants, still assign a 60 probability to their economic predictions, with a 20 percent chance of a better recovery and a 20 percent chance of a “double dip” recession.

Another interesting note: the Update talks about technical adjustments they’ve made to account for the fact that the state has been dealing with cash flow issues through delaying certain kinds of tax refunds.

-Nan Madden

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Wondering what the federal stimulus means for our budget, our economy?

April 2, 2009

Well, wonder no more.

Last Sunday, I teamed up with Paul Anton (chief economist over at Wilder Foundation) at the DFL Education Foundation’s annual meeting to talk about what the federal stimulus dollars will mean for Minnesota’s budget and the nation’s economy.

Now you are probably like most other people and prefer to spend your Sunday afternoons relaxing, not attending presentations on the federal stimulus package. Fortunately, the event was videotaped by staff at the St. Louis Park City Hall.

The presentation – “Federal Stimulus: Manna from Heaven or Finger in the Dike?” – is available online as a streaming video or an audio podcast. The links are available at the DFL Education Foundation website.

-Christina Wessel


Newly passed law may bring the budget “tails” into focus

March 11, 2009

Naturally, there is a lot of focus these days on how we are going to solve the budget deficit for FY 2010-11. But it is important to remember there is another large deficit waiting for us in the following biennium – the so-called “tails.” The February Forecast projects a $5.1 billion deficit for FY 2012-13, or $6.5 billion if we include the impact of inflation.

So, we have a $6.4 billion deficit now and a $5.1 billion deficit later. In other words, we aren’t going to grow our way out of this problem. We are in this situation for the long haul.

And it could be worse than predicted in the future. That’s because the planning estimates for the future biennium assume that Minnesota’s economy will perform at the national average. That’s a fair practice – it’s far more difficult to model a state economy that far into the future than it is the national economy. But Minnesota’s economy has been under-performing the national economy over the last two years. That means those future projections may turn out to be too optimistic.

This becomes a significant concern because it’s very likely that a huge portion of the solution to the FY 2010-11 deficit will be one-time. The one-time money on the table includes potentially $2.6 billion from the federal stimulus package, plus the $1.3 billion from shifting education funding and roughly $1 billion from selling bonds that was in the Governor’s budget. That means more than two-thirds of the solution to the deficit could be a one-time fix.

If we rely so heavily on one-time solutions this time around and Minnesota continues to under-perform the national economy, we could be facing another big budget mess in two years.

Recently, however, the Governor signed a bill that could make things interesting. The new law requires the Governor to propose, and the legislature to enact, a budget that is balanced through FY 2012-13.

This isn’t a new idea. Governor Arne Carlson regularly followed the practice of balancing the budget over four years. And earlier this year, the State Budget Trends Study Commission recommended the Governor and legislature institute a policy of passing a budget that is structurally balanced for the current and following biennium.

 However, if policymakers truly attempt to meet this challenge, it will mean making some very tough decisions about revenues and expenditures starting in the FY 2010-11 biennium. A heavy reliance on one-time fixes won’t do the trick. Hopefully, this bill will prompt a more honest look at the long-term consequences of the choices we make to solve the budget deficit.

-Christina Wessel


Minnesota’s February Forecast – federal stimulus clouds the situation

March 3, 2009

The numbers are out…but the federal stimulus dollars are clouding the seriousness of the situation.

The state budget deficit is projected to grow to $6.4 billion for FY 2010-11, or about 17% of the state general fund budget. This is up from the $4.8 billion predicted in the November Forecast and is right in line with the kind of bad news people have been expecting.

However, the headlines are focusing on a rosier number – $4.6 billion. What accounts for the difference? The lower number includes the impact of some federal stimulus dollars. Specifically, $1.8 billion in Medicaid matching funds (although $460 million of these matching funds come in FY 2009). The largest chunk of money coming to the state from the federal government is in the form of an increase in the federal matching rate on Medicaid spending. Normally Minnesota pays 50% of Medicaid costs and the federal government matches at 50%. Under the federal stimulus plan, the federal matching rate rises closer to 60%, allowing Minnesota’s share to fall to about 40%. These federal dollars are included in the forecast because the state already has the statutory authority it needs to accept Medicaid funds. However, in order for the state to draw down the full $1.8 billion, we cannot make any changes in eligibility to Medicaid programs. This restriction will force the Governor to make some significant revisions to his proposed cuts in health care.

There are other federal stimulus dollars the state is likely to receive, but does not yet have the statutory authority to accept, so they aren’t included in the forecast. The biggest chunk of unrealized federal funds: about $800 million in state stabilization funds, most of which must be spent in K-12 or higher education.

What the $1.8 billion in federal Medicaid funds may hide, however, is the seriousness of the state’s current economic circumstances. State Economist Tom Stinson warns that this is likely to be the longest and deepest recession since World War II. Before it’s over, Minnesota is expected to lose 120,000 jobs – 50,000 of them are already gone. And this prediction assumes positive effects from the federal stimulus legislation.

Don’t get me wrong, the federal stimulus dollars are helpful and welcome, but they are just a one-time solution. And the Governor’s budget proposal already includes about $2.3 billion in one-time solutions for solving the deficit – including selling bonds and shifting state education payments.  Adding these three pieces together means that more than 60% of the budget solution could end up being just a one-time fix.

Unfortunately, our budget troubles don’t end in FY 2011. In fact, the projected deficit for FY 2012-13 has grown to $5.1 billion, or $6.5 billion if we include the impact of inflation.  These numbers are more for planning purposes, but they do indicate that there is no quick answer to Minnesota’s economic challenges.

The situation is serious – we shouldn’t let the influx of federal resources hide the fact that Minnesota has a long-term problem. That means we need to have all the potential budget-balancing tools on the table – including solutions that will have a long-term impact on reducing our deficits – like raising revenues.

Be sure to visit the Minnesota Management and Budget website to download a copy of the February Forecast or to look at the very useful PowerPoint presentation from the press conference. You can also check out the Minnesota Budget Project’s press release on the forecast.

-Christina Wessel


Our analysis of the Governor’s budget is now available…at least, Round 1

February 26, 2009

The staff at the Minnesota Budget Project has been quite busy this week, which is why our blog has been a little quiet. But don’t worry, plenty of information is on the way…

…Starting with us releasing our analysis of the Governor’s budget proposal. Round One: Governor’s Initial Budget Proposal Focuses on Spending Cuts and One-time Measureshighlights the major components of the Governor’s budget and provides a deeper look at the proposed spending reductions. It includes many of the proposals we’ve been blogging on…plus more! Read it, become an expert and impress (or annoy) your friends at cocktail parties.

But remember, things are going to change significantly starting next Tuesday (March 3). That’s when Minnesota Management and Budget will be releasing the state’s February Forecast. We expect to find out that we have a new deficit for the FY 2008-09 biennium (the Governor closed the initial $426 million deficit through unallotment). And, as I’m sure you’ve heard, the deficit for the FY 2010-11 biennium is expected to grow from $4.8 billion to $6 billion (or more). But all this is speculation until we learn the facts next Tuesday.

The Governor will be releasing a supplemental budget later in March. In this 2nd round, he will need to adjust his initial budget proposal to respond to the new deficit figures and incorporate the impact of the federal stimulus bill. Under these unusual circumstances, it will nearly be like starting from scratch.

And we have some advice for the Governor and legislature as they try to address the budget gap. First, I have an op-ed in the St. Paul Pioneer Press today (Make the numbers add up to a future that works) outlining a few ideas for how we can design a budget that kick-starts our state economy, builds a workforce ready for the future and keeps our families strong through the recession. A key part of that – raising revenues! So be sure to check out our recent piece on revenue raising options.

-Christina Wessel


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