The state's economic forecast is out, and the news is not good. After four solid years of surpluses, Minnesota once again is headed into the red, both for the short and long term.
This should not be entirely surprising, given that it comes after a Republican Legislature and DFL governor, after months of fighting, found grudging compromise by marrying an outsized tax cut to higher spending. It was risky at the time, and now Minnesotans can see the results.
The deficit starts out small — $188 million for the current two-year budget period. But it grows to $302 million when the operating budgets for the House and Senate, withheld by Gov. Mark Dayton, are counted. Meanwhile, tax revenues are projected to slow in every major category, while spending is running above projection. Without change, that would produce a $586 million shortfall for 2020-21.
In the context of a $46 billion budget, that may still seem minor. Dayton in a statement Tuesday said the state has "slightly exceeded our budgetary limits" and called the projected deficits "readily correctable." We'd advise against making up the difference entirely out of the state's hard-accumulated $1.6 billion budget reserve. That is a one-time pot, not designed to fund recurring budget issues. State leaders are obliged to create a more lasting solution.
Besides, those reserves should be squirreled away against possible further downturns. That's because the real danger here is the high degree of uncertainty at the heart of the projection. This forecast does not factor in still-evolving congressional tax changes that could dramatically alter federal revenues and trigger a wave of domestic spending cuts. Several of the planks common to U.S. House and Senate bills could seriously affect higher-tax, higher-service states such as Minnesota. Already the federal decision not to fund a children's health program has added to Minnesota's projected shortfall.
Not all of the news from the forecast is bad. The state's economy is stable, unemployment is low and the U.S. is in a record ninth year of economic expansion. But the foundation is fragile, resting on presumed increases in U.S. consumer spending and a relatively strong world economy, in which no major country is in recession and demand for American goods remains high. Continued uncertainty on trade policy and immigration adds to a volatile mix that could erupt into far more serious deficit projections within months.
The state will get another forecast in February/March, and Dayton has said he'll wait for that "more reliable guideline" before making budget recommendations needed to restore balance. But there is much work to be done before then, and not just by the governor. The prudent course — one that Minnesotans should demand — is for Dayton, House Speaker Kurt Daudt and Senate Majority Leader Paul Gazelka to heed the warnings in this forecast and begin talks now.
Collaboration and consensus have been notoriously elusive for this trio. There are hard feelings left from the last legislative session and little trust. Much rebuilding of those tattered relationships can occur over the next few months, leaving Minnesota with three leaders working constructively to face whatever the coming year brings.