Conservation Minnesota

The State’s First-Quarter Budget Report

Some Positive News with Lingering Concerns.

The Minnesota Management and Budget (MMB) office has released its first quarter revenue summary for this fiscal year.  This is essentially the first snapshot of state government’s actual revenue collection against the projectioned collection numbers it used to develop the budget last session. This is not the November budget forecast which is the tool the Legislature uses to balance the budget, but it starts to paint the picture of what one could expect in the upcoming forecast which will be released on December 1.

The first quarter report shows that the state’s economy has performed better than expected, resulting in revenues that are 1.6% above projections, but MMB cites some lingering concerns.  Here are some essential details worth noting from an overall perspective and as it relates to conservation spending.

The net non-dedicated General fund revenues in the first quarter totaled $3.651 billion which was $59 million (1.6%) above the February forecast.  This is somewhat deceptive in that the forecast actually assumed the state would receive nearly $60 million in an income tax reciprocity payment from Wisconsin in this quarter of this biennium.  In fact Wisconsin paid that reciprocity early and it was reflected in the last biennium’s books.  Thus, it made last biennium look better and causes this quarter’s reports to be $60 million off.  Therefore, that means Minnesota’s economy allowed for state revenues to grow by $120 million or 3.2% above projections.

It’s worth noting that the February forecast for which this receipt of revenue is calculated against was assuming a 3% real GDP growth for the state’s economy.  The State of Minnesota has been already told by Global Insight, the firm that does their forecast, that they have downgraded their growth projections for the national economy that they will be using for the upcoming November forecast to a real GDP of 1.7%.  Therefore, Minnesota is doing slightly better than the projections and doing significantly better than the national economy.  More on that later.

Significant for the conservation community was the performance of the sales tax.  The good news is that the sales tax performed 2.9% better than what was forecasted.  This is the unrestricted general fund performance, but it essentially reflects additional revenue collections to the Legacy accounts as a percentage.  The sales tax receipts finished the last biennium down from expectations slightly for the full biennium deficit of $30.1 million.  The performance of the sales tax in the first quarter has already made up for that amount by outpacing projections by $31.9 million.  Given the good management by the Legacy accounts with their solid reserves, this could very well mean we will have additional Legacy dollars to appropriate for the upcoming biennium than what was projected back in February.

This is all good news for the state, but MMB was very quick to note some lingering concerns in the lead up to their important November forecast to release in less than a months time.  They stated:

“While most economists expect the U.S. to avoid a recession, real GDP growth over the next six to nine months is expected to be very slow . . . the tepid growth rate now seen likely through at least mid-2012 leaves the expectation dependent on the absence of extraordinary events and avoidance of policy errors both in the U.S. and the Eurozone.”

As a result, Global Insight’s downgrading of the national growth expectations to 1.7% will likely mean Minnesota’s growth expectations of 3% will be substantially reduced from the February forecast.  Therefore, Minnesota’s good fortunes recently compared to the national economy will likely not spell a good November forecast.  State economist Tom Stinson has recently warned that Minnesota will likely face a new deficit for the current biennium based largely on the downgrading of the GDP growth.  This will likely set off a new round of budget wars at the Capitol in 2012.

Therefore, despite the positive revenue receipts don’t expect much positive news to come out on December 1.  Unfortunately, it might set off a war of the numbers as to whether the state really is in an operating deficit for this biennium.  This will escalate if the second-quarter numbers that come out in mid-January also perform better than expected.  That would give impetus to those who simply want to ignore the budget forecast in the 2012 session and leave the problem to the new 2013 legislature.

In some ways from the conservation community, avoiding more cuts in 2012 is a positive thing.  Unfortunately, punting the problem to 2013 could mean a much bigger problem that must be solved over a 4-5 month period as opposed to a budget fix in 2012 that would give the Legislature some 14-15 months to spread out the pain.  As with all state budgeting and forecasting over recent years, it’s all a gamble.  The good news for now is the state’s economy is growing.  My only suggestion at this stage is to go on a good old-fashioned shopping spree for Christmas to help it along a little bit more.

John Tuma

Conservation Minnesota

About John Tuma

John Tuma
John is a former state legislator and litigation attorney. He served in the Minnesota House of Representatives for eight years from the Northfield area, beginning in 1994. Elected as a Republican, John was known for his independent thinking and ability to work across party lines. He is well-known in Minnesota state government circles.
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