A rare May budget forecast shows the grim effect coronavirus is having on Minnesota’s budget: from a $1.5 billion surplus to a $2.4 billion deficit.
Back during the February budget forecast release, the economy was in good shape,the U.S. economic outlook was stable and Minnesta had a projected surplus and low unemployment. About 2 months later around 600,000 have applied for unemployment insurance.
“The disease outbreak, the restrictions applied to slow its spread, and the U.S. and global economic contractions have rocked Minnesota’s economy,” State economist Laura Kalambokidis said Tuesday.
Minnesota is facing a $4 billion swing from that February forecast. Individual income tax receipts, sales tax revenue and corporate tax revenue are projected to be down.
Kalambokidis said the economic outlook is “exceptionally volatile” nationally.
Gov. Tim Walz has the legal authority to draw from the rainy day fund, said Management and Budget commissioner Myron Frans.
“There’s a reason we call the budget reserve and the cash account, which is another $350 million, a ‘rainy day fund.’ It’s for a rainy day and, well, today is a rainy day unfortunately,” Frans said. “Now is the time to use some of our $2.3 billion rainy day fund to help Minnesota weather this severe economic downturn and give policymakers -- the governor and the legislature -- time to consider options to maintain critical services, and support growing needs in the face of declining revenues.”
Walz said the legislature does not have to solve this before the session expires and that restoring budget balance will be an ongoing, long term process.
“If you watch a lot of news out of New York and watch some of the early nations in Europe and Asia go through this that there is a false belief we are past the worst of this,” Walz said. “We are not. As a nation, our peak is still coming and I think that’s going to be the thing we have to grapple with. I’m going to anticipate that this could deepen in terms of the deficit and we should approach it that way and take this a step at a time. I think that was Commissioner Frans’ guidance to be careful about the reserves, to think about the ways that there are many tools to use. It’s not just dump the budget reserves in and you’re even today because tomorrow, if we go back in it’s not there.”
