Please ensure Javascript is enabled for purposes of website accessibility
Recent News
Home / News / Economic forecast: Budget deficit down to $627 million
**UPDATED**Minnesota's latest economic forecast predicts a $627 million deficit over the next two years, a more than $400 million improvement from the last forecast in November.

Economic forecast: Budget deficit down to $627 million

MMB Commissioner Jim Schowalter (Staff photo: Peter Bartz-Gallagher)

Minnesota’s latest economic forecast predicts a $627 million deficit over the next two years, an improvement of more than $450 million from projections late last year.

Budget officials predicted a $1.1 billion budget deficit for the 2014-2015 fiscal year in November. The new numbers, released by Minnesota Management and Budget (MMB) on Thursday morning, will kick off months of budget work in St. Paul.

Gov. Mark Dayton and legislative leaders welcomed the surprisingly positive economic news.  “This forecast projects that we will return to our pre-recession, all-time highest level of employment in the state by the end of this year, about nine months sooner than the nation as a whole,” Dayton said at a press conference on Thursday. “That’s progress. It’s not progress anybody’s satisfied with, but it’s a big step forward from where we were.”

The FY 2012-13 budgeting period that ends this summer is now projected to have a positive balance of $295 million. Under current state law, almost all of that money must go toward replenishing budget reserves and paying back the K-12 school shift. The state’s reserves will get a $5 million boost, bringing that balance to $649 million, and the K-12 shift will  be paid down, leaving a balance of $801 million remaining to be repaid. The shift reached a high-water mark of $2.4 billion in 2011.

The forecast assumes that $85 billion in federal cuts set to be implemented beginning on Friday will last for two months before a deal is brokered in Washington. That’s based on a projection from Global Insight, a national economic consulting firm that the state relies on for macro-economic forecasting.

State economist Tom Stinson pointed out that the lingering uncertainty at the federal level will continue to have a ripple effect on the state’s economic performance. “We’re going through a time when government policy plays a major role in economic forecasts,” Stinson said. “Predicting political actions are now as important as predicting the underlying economic relationships in the short-term forecast.”

The 2016-17 projected surplus has also improved from $263 million to $782 million, according to Minnesota Management and Budget. But that doesn’t account for inflation. When inflation is taken into account the state actually shows a $1.5 billion deficit for that biennium.

Dayton indicated that he will offer a revised budget the week of March 11. He suggested that spending additional dollars on the state’s property tax refund program for renters and on upfront sales tax exemptions on capital equipment purchases will be two priorities. Dayton’s initial budget proposal included a net $2.1 billion in additional taxes.

Republicans repeated their assertion that holding the line on taxes when they were in charge of the Legislature during the previous two years has been vindicated by the state’s steadily improving economic forecasts. House Minority Leader Kurt Daudt warned that the increased taxes in Dayton’s budget could scuttle that progress. “We don’t think he needs a revised budget,” Daudt said. “We think he needs to go back to the drawing board.”

About Paul Demko and Briana Bierschbach

Leave a Reply