Minnesota Lawyer
Rep. Ann Lenczewski, DFL-Bloomington, chair of the House Taxes Committee, says it’s “too early to tell” what the recent numbers mean, especially as some 2013 income tax payments have yet to be finalized, a process that will play out during the month of June. (File photo)
The point at which a series of occurrences becomes a “trend” is typically a question of perspective. Even more subjective is what, if anything, that series of events might mean.
Minnesota’s tax collections have come in slightly under projected levels in each of the last four months. Through the end of May, the state was about $95 million below estimated revenue totals for the fiscal year, which ends July 1.
In context of the full budget, that deficiency is relatively insignificant — about 0.6 percent below projections. But Republican legislators and gubernatorial candidates have seized on the run of disappointing months, which they have called a clear indication that the state is headed in the wrong direction.
Minnesota Management and Budget (MMB) Commissioner Jim Schowalter cautioned against reading too much into the “notoriously volatile” monthly returns, and said broader economic indicators show no sign of a serious economic downturn.
“For our economists, and the data that we see, we do not see any points of significant concern,” Schowalter said.
May revenues off 1 percent
The June revenue report, which outlined tax collections for the month of May, was issued late Tuesday afternoon. The MMB memo explained that the $1.45 billion revenues were $17 million, or about 1 percent, off earlier estimations. Income tax revenues were off by a total of $15 million, while corporate franchise tax collections were off by $22 million, or just more than half the monthly estimate.
Within the hour, House Minority Leader Kurt Daudt had issued a scathing response, saying Gov. Mark Dayton and the DFL majorities had “committed Minnesota taxpayers to historic spending increases and ignored early warning signs.” That message was echoed by Rep. Greg Davids, R-Preston, who observed on Thursday that he was troubled but not surprised by the underwhelming monthly totals.
“When you throw tax after tax after tax at Minnesotans, you can expect that this will happen,” said Davids, who added that he was particularly concerned about the poor performance in corporate tax receipts.
Likewise, Jeff Johnson and Marty Seifert, two of the Republican candidates running for the party’s gubernatorial nomination, said the winter and spring lull is worth noting.
“$95 million is certainly a lot of money,” Seifert said. “We’ll get a better idea when the fall [economic] forecast comes… but certainly the trend line is in the wrong direction.”
Johnson, who won the GOP endorsement in late May, said he would hesitate to put too much stock into one or two months’ worth of revenue figures, but thinks the current period could be a “warning sign” of a larger problem.
“With four months in a row, it’s something we do have to watch,” Johnson said. “Things have to change.”
Employment gains down
As recently as February, it seemed all the economic news in Minnesota was of the upbeat variety. The state was projected to run a $1.2 billion surplus for the current biennium, allowing lawmakers to head into the legislative session with a sense of optimism, not to mention a generous margin of fiscal breathing room.
Reports of the last few months have been decidedly less rosy, with a combination of flagging job numbers and reduced tax revenues.
“Employment gains have been disappointing — in fact, nonexistent — since the beginning of the year,” said Steve Hine, labor market information director at the Department of Employment and Economic Development (DEED).
Figures released in mid-May were particularly downbeat, as DEED announced that the state had lost some 4,200 jobs in April. Even worse, previously calculated job gains of 2,600 for the month of March were revised downward to just 700. Those numbers show a marked change for the worse compared to the last quarter of 2013, when the state added 28,000 jobs.
The state economy was probably rattled by the unusually harsh winter, according to Hine, which put a damper on a number of industries, from delayed construction projects to consumers who feel less inclined to venture out for a shopping excursion or dinner at a restaurant. With that factor in mind, Hine said he is particularly interested to see new employment numbers for May, which are due out next week.
“We’re anxious to see a turnaround,” Hine said. He continued: “If it’s another weak month, then we’re starting to get into the territory of having to think of this as a more prolonged thing.”
Final 2013 tax collections this month
Schowalter observed that state employment levels and tax collections do not necessarily have a “close relationship” on a month-to-month basis, but said employment statistics can be used as a gauge of upcoming shifts in state revenue.
Rep. Ann Lenczewski, DFL-Bloomington, chair of the House Taxes Committee, has been closely tracking monthly revenue collections, but said that it’s “too early to tell” what the recent numbers mean, especially as some 2013 income tax payments have yet to be finalized, a process that will play out during this month.
“It’s all preliminary,” Lenczewski said. “I guess I’d say, call me in a month and then we’ll have something to talk about.”
Davids, Seifert and Johnson all agreed that the slightly underperforming collections should be viewed in context, and are only a part of the story of the state economy. But Johnson pointed to other evidence of trouble for Minnesota, citing a recent study by the Kauffman Foundation that ranked Minnesota 48th for entrepreneurial activity.
Lenczewski, for her part, cited a number of positive findings — “we’re still in Forbes’ top 10 for states to do business in,” she said — and said she is looking forward to a campaign season focused on debate about the state’s economy.
“Republicans say the way to build the economy is to shrink the government, and just do tax cuts,” Lenczewski said. “The DFL is saying, ‘let’s make some strategic investments.’ These are people who feel two different ways, and probably aren’t going to change their opinion, no matter what the facts are.”
