The state’s revenues continue to come in higher than expected. That’s the good news in the October 2012 Economic Update released yesterday by Minnesota Management and Budget. I’ll get to the bad news a bit later, but it’s pretty much the same story we told about the July update.
For the first quarter of this fiscal year (FY 2013), revenues are $145 higher than projected, and the final close of the books on FY 2012 showed that year ended $299 million above projections. That $444 million will be used to make a dent in the more than $2.4 billion needed to reverse the school funding shifts used in recent years to address state budget shortfalls, assuming those figures hold when the economic forecast is released on December 5. State law requires that future surplus dollars go to that purpose.
The picture for the next two-year budget cycle is not so rosy. The national economy remains sluggish, and growth is not as robust as would be typical in this stage of an economic recovery. The Economic Update notes that forecasters are predicting slower growth in 2013 and 2014 than they predicted in February.
We ended the 2012 Legislative Session with a $1.1 billion shortfall projected for the next budget cycle. The October Update information implies that things could get worse. The slower economic predictions could result in a larger revenue shortfall in the next budget cycle. This more sobering news reminds us of the importance of taking a balanced approach that invests in the building blocks of our future prosperity.
Another threat lies in poor fiscal decision-making at the federal level. Economists assume that federal policymakers will reach a compromise on the important tax and budget decisions before them. They note that a recession is likely if policymakers fail to reach agreement. But unbalanced federal deficit-reduction decisions would also harm the state – Minnesota could lose $3.8 billion in federal funding to state and local communities under one such scenario. A balanced approach, including raising revenues, is the right choice for long-term federal deficit-reduction.