Forecasted State Deficit Based on Overly-Cautious Assumptions

SD49_Budget_Info_Picture.jpgThe Dayton Administration released the November forecast, showing a projected $188 million deficit due to lower-than-expected revenues based on assumptions about federal legislation and U.S. GDP and wage growth. The forecast also reflected $178 million in state spending on the federal Children's Health Insurance Program (CHIP), nearly all of which would be backfilled once CHIP is renewed at the federal level.

Read the presentation from MMB here.

Read the full forecast here.

Some overly-cautious assumptions negatively impacting November’s forecast: 

1) forecast assumes no federal tax bill will be enacted despite passage in both the House and Senate last week.

 2) forecast assumes 2.2% GDP growth in 2017 despite 3.1% growth in the second quarter and 3.3% growth in the third quarter.

Simply put: November’s forecast was obsolete on arrival. Both the governor and legislative leaders anticipate stronger, more accurate revenue estimates when the forecast is updated in February.

Governor Dayton told the media the projected deficit was speculative and not a result of specific actions by the legislature or the governor, but a change in economic projections. 

Read the GOP Leaders' response here.

Republican efforts to rein in spending, provide tax relief, and make critical investments in road and bridge infrastructure are proving to be financially responsible steps. In addition, as noted in the full forecast document, Minnesota's unemployment is at its lowest level in 17 years, and wages are growing. Our outlook is positive.