In A Surprising Turn, Budget Office Reports Larger Deficit Than Next Year’s Actual Shortfall

From the Minnesota Reformer:

By Ricardo Lopez

December 2, 2020

The $1.273 billion shortfall projected for the upcoming biennium assumes the entirety of the $641 million current budget surplus is spent. Slide courtesy of Minnesota Management and Budget

Tuesday’s state budget forecast reported an expected $1.27 billion shortfall for the two years beginning in July — but it comes with a heavy asterisk.

It assumes lawmakers will have spent the entirety of a $641 million budget surplus now forecasted in the current budget cycle that ends June 30.

In other words, if the Legislature and Gov. Tim Walz decided to keep their powder dry and not spend the $641 million surplus now, the deficit later would be much smaller and easier to solve.

But Walz and lawmakers in both parties are already in negotiations over how to spend the money, hoping to alleviate some of the economic pain caused by the pandemic and related restrictions on bars, restaurants, gyms and other public accommodations.

Under Minnesota law, budget forecasts can only take into account spending already authorized by the Legislature, which is why the reporting of the larger deficit figure is unusual.

Indeed, the $633 million deficit is reported in a Minnesota Management and Budget general fund balance analysis.

Chris Kelly, an MMB spokesman, on Wednesday defended the presentation of the $1.273 billion figure in press materials and a forecast presentation as a planning estimate and quibbled with calling it a deficit, saying it was actually a “shortfall.”

“We speak of surplus and deficits for the current budget only (the one that that is signed into law and actually exists),” he said in an email.

He argued that the budget agency “commonly” presented planning estimates that way, pointing to examples from 2008 and 2012 when the state previously faced deficits.

Budget officials, Kelly said, assume negotiations to provide financial relief to unemployed Minnesotans and businesses affected by the COVID-19 pandemic will be successful, leading to the larger deficit figure of $1.273 billion.

Tuesday’s budget forecast presentation deviated from past forecast days.

Typically, the budget office publishes a lengthy budget book containing detailed fund balances that can take time to digest and vet, and schedules a press conference for the same day.

Instead, budget officials moved up the release of the forecast by two days, but will publish the full budget book on Thursday, releasing limited materials to reporters on Tuesday.

Kelly said the reason for the date change was to give lawmakers more time to plan for a special legislative session. “As the state continues to respond to emergency situations, every day matters,” he said.

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