The state Management and Budget Office released an interim budget projection Monday showing the state will face a $2.43 billion budget deficit for the biennium instead of a $1.51 billion surplus, as projected in a February forecast. State general fund revenue is projected to be $3.61 billion lower than the February projection, the office said, while spending is projected to be $391 million higher.
According to the projection, individual income tax revenue will be $1.66 billion lower, and general sales tax revenue will be $1.35 billion less. Corporate franchise tax revenue will be $405 million lower, and state general property tax revenue will be down $12 million. Revenue from other taxes, including taxes from lawful gambling and other taxes not specified in the report, would be $84 million lower.
"The disease's outbreak, the restrictions applied to slow its spread and the U.S. and global economic contractions have rocked Minnesota's economy and generated conditions that will remain volatile as long as the pandemic persists, and as long as the U.S. outlook remains uncertain," state economist Laura Kalambokidis said at a Monday presentation.
According to Myron Frans, the Minnesota budget commissioner, the state has a $2.36 billion budget reserve and a cash-flow account balance of $350 million.
Gov. Tim Walz, of the Democratic-Farmer-Labor party, is authorized, Frans said, to use the budget reserve to address the budget deficit. However, Frans added, the governor and lawmakers would then need to examine the state's revenue and cost structures to rebalance the budget
"I also want to caution against relying solely on the reserve to close this budget gap," Frans said. "Depleting these funds in this current situation is difficult, because we know revenues are going to continue to decline during the remaining 14 months."
However, Frans also said lawmakers don't need to solve all the state's budget problems by May 18, the end of this year's legislative session. The state "should not overreact or underreact," Frans said, as information on the economy and pandemic is constantly changing and the budget will probably need to be adjusted several times throughout the biennium.
Because of the volatile nature of the pandemic, the office said its projection does not include estimates for the 2022-2023 biennium. It noted that it expects the pandemic will likely have a large negative impact on the state's budget, although the extent would be hard to quantify without more concrete data.
Walz said in a statement that the projection confirmed what people had suspected, and added that the state would have to make hard decisions to balance its budget.
"As I said during my [April] State of the State address, there is a long winter ahead," Walz said.
However, he added that Minnesota's "smart budgeting" in previous years had left it in good position to address the pandemic.
"We must not undercut what got us there: Investing in our children. Expanding access to health care. Putting Minnesotans first," Walz said.
Sen. Roger Chamberlain, R-Lino Lakes, chairman of the Senate Taxes Committee, told Law360 he was confident the state would weather the pandemic. Chamberlain said he would not propose any tax increases to balance the budget.
"Spending has increased substantially in the state of Minnesota, and we have extensive amounts of waste," Chamberlain said. "Certainly the last thing you want to do is punish people more after they've lost their job or their businesses have failed."
Chamberlain was also a sponsor of S.B. 3843, which would extend filing and payment deadlines for several tax types, waive penalties and fully conform to federal law on deducting expenses for capital equipment in response to the pandemic. The bill passed the Senate on April 30 and is estimated to cost $330 million.
Democrats argued at the bill's passage that the Senate should have waited to hear the updated revenue projections before voting. Chamberlain said that his outlook on S.B. 3843 had not changed after he heard the updated revenue forecasts and that the bill would provide liquidity and boost the economy.
Walz's office did not respond to requests for comment.
Senate Democratic leadership did not respond to requests for comment.
--Editing by Neil Cohen.
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