Note: this column originally ran in the Owatonna People’s Press.
Budget forecast shows Minnesota’s economy strong
For most of us, the thought of reading government financial reports makes our eyes glaze over. Before I became a senator mine sure did. But dull as they can be, these reports are important to understand because they help guide legislators’ decision-making each session.
One especially important report is the comprehensive economic forecast released by the office of Minnesota Management and Budget (MMB). It comes out twice a year, and we just received the November update.
You may have seen the headlines announcing Minnesota’s $188 million deficit for the current budget cycle. It is easy to read those headlines and be alarmed, but we have to remember a few important things about these forecasts.
First, they are not our set-in-stone destiny. They are merely predictions based on a number of constantly-changing factors, models, and assumptions about our economic growth. Yes, this forecast projected a small deficit. However, as our state economist acknowledged, there is no reason to be concerned. Thanks to careful planning, the state has more than enough money in our reserve accounts and rainy day funds to cover the shortfall – if it somehow persists.
Second, sometimes forecasts can be misleading. One reason to believe it is unlikely the $188 million deficit will persist is because the November forecast did not factor in two important pieces of federal legislation that could both become law in a matter of weeks – tax reform and a reauthorization of the Children’s Health Insurance Program. The mere inclusion of those two items would be enough to erase the deficit.
The issue of the federal tax bill is particularly odd, because the previous economic forecast accepted the likelihood of congress and the president passing a tax reform package. Even though MMB forecasters admit it will improve our economic situation, they removed federal tax relief impacts from the November report shortly before publication. Further, forecasters accept that federal tax reform will benefit our economy, but insist the tax relief legislative Republicans passed last spring will be devastating – their inconsistent position does not make sense.
There is also plenty of good news in the report – news that deserves recognition. Minnesota’s economy and the United States economy are both on solid ground. Consumer confidence is higher than it has been in 17 years. U.S. economic growth has been above 3% in each of last two quarters, even in spite of devastating hurricanes. This is faster growth than we have had in years. Minnesota’s unemployment rate is at 3.3%, one of the lowest rates in the nation. Wages are projected to continue increasing. And exports were up in every quarter of 2017.
The budget deficit number will garner all the headlines, but things are far from “doom and gloom.” Republicans led the way this year to craft a responsible budget that positions our state to be successful for years to come by focusing on building up working families, and we are already starting to see positive results. I predict we will build on that success in 2018.