The November Economic Forecast was released last week by the Minnesota Management and Budget Office (MMB). According to the MMB report, Minnesota faces a $1.2 billion shortfall for the 2010-2011 budget cycle and an estimated $5.4 billion shortfall for the 2012-2013 budget. Approximately 70% of the deficit stems from a reduction in income tax receipts, which is mostly due to a larger than anticipated decline in wages.
They are also anticipating that the Health Care Access Fund (HCAF)—the fund used to pay for MinnesotaCare, the state's health insurance program—will be zeroed out by 2011, mainly due to the shift of General Assistance Medical Care (GAMC) patients onto the program. Governor Tim Pawlenty line-itemed vetoed the GAMC program in July, saving the state about $381 million but resulting in approximately 30,000 Minnesotans losing their health insurance. Fixing the almost bankrupt system will be a huge factor in how the legislature decides to handle the budget deficit.
The forecast also provided new insight into Minnesota's jobs outlook. Despite Minnesota's lower than national average unemployment rate (Minnesota currently stands at 7.6%), there has been an increase in the number of jobs lost, from 120,000 last February to 154,000 in November. Though MMB did not indicate a cause for the increase in job losses, it does expect employment to increase in the spring of 2010 as hiring for the federal census begins.
In Gov. Pawlenty's released statement, he called the projected deficit "significant but solvable" and outlined his key principles to balancing the budget as requiring government to live within its means and moving toward being a more business- and job-friendly state.
The legislature and Gov. Pawlenty will be faced with the difficult decision to cut spending and/or increase revenue in order to balance the budget. Though Pawlenty has stated interest in working with the legislature to find a solution, he has already stated he will be "holding the line on taxes" and has stated that all programs except for public safety and military affairs will be subject to additional spending cuts. He could also use his executive powers to unallot if no compromise is reached. Pawlenty unallotted $2.7 billion in July in order to balance the budget. He has already hinted that it may be necessary to unallot a portion of the December 2009 local government aid, estimated at $4 million. And he has directed his state agencies to reduce their unspent operating funds by 3%.
One thing that the Governor and the DFL and Republican legislators do all agree on is that the 2010 legislative session will be focused on putting Minnesotans back to work and stimulating our business economy. Both parties have stated that a large bonding bill will be key to ensuring an increase in work productivity, wages, and increased tax revenue. The only point of contention will be figuring out how much the bonding bill will be worth.
To read a summary of the forecast, go to http://www.mmb.state.mn.us/doc/fu/09/summary-nov09.pdf. You can access the handouts from last week's press conference on http://www.finance.state.mn.us/forecast.
You can read the Governor's statement and press release on http://www.governor.state.mn.us/mediacenter/pressreleases/PROD009742.html.
To view the DFL and Republican responses, go to http://www.senate.leg.state.mn.us/media/media_list.php?ls=86&archive_yea....