Deficit leaves lawmakers with painful math problem

Gov. Tim Walz, right, listens as MMB Commissioner Myron Frans talks.
Gov. Tim Walz, right, listens as Minnesota Management and Budget Commissioner Myron Frans talks about the state's budget projection on Tuesday.
Glen Stubbe | Star Tribune via AP, Pool

Word this week that Minnesota is on course for a $2.4 billion budget deficit has left lawmakers facing a big problem without much time to fix it.

Until March, Minnesota’s legislative session was humming toward a conclusion that seemed likely to provide new education spending and targeted tax cuts given a decent-sized surplus.

Those discussions came to an abrupt end as the coronavirus pandemic hit. The projected deficit amounts to about 8.5 percent of the remaining budget that runs through June 2021.

“This is a math problem,” Minnesota Management and Budget Commissioner Myron Frans told House lawmakers Wednesday. “You have revenues dropping and spending going up — equals a budget deficit.”

And Frans said the math problem has to be solved with a series of choices that will affect hundreds of thousands of Minnesotans.

“So, we have got to figure out what to do about the revenues and the spending in order to reequalize that budget balance — either through the use of revenue changes, spending changes and use of the budget reserves,” Frans said.

Gov. Tim Walz is expected to issue a set of budget recommendations in the next couple of days, Frans said.

Senate Majority Leader Paul Gazelka, R-East Gull Lake, has warned his colleagues the task ahead will be difficult.

“Moving forward, I believe as you do that it will be much worse than we’re at right now.” he said. “And so as we’re moving through this, we’ll look at the tax bill as we’re negotiating to the end. We’ll look at the size of the bonding bill. We’ll look at the state contracts.” 

Veteran Sen. Tom Bakk, DFL-Cook, said the examination should start soon.

“Let’s start assessing what it is we can unwind from what we did last year,” Bakk said.

Bakk urged leaders of both parties to press for a special session to work out a budget fix this summer or fall — while there’s still time to make a dent.

The Legislature is set to adjourn May 18 and wouldn’t otherwise return until January, which would leave just six months to scrape up enough money to plug the hole.

“It is not a pretty sight to end a biennium and hand off to a brand new Legislature next January, a big problem,” Bakk said.

Minnesota's budget reserve tops $2.3 billion, but Frans said it would be a mistake to just gobble that up in one bite because the coronavirus economic fallout is expected to last.

State economist Laura Kalambokidis said Wednesday that even when the virus itself passes, it'll take time for the economy to rebound. It comes down to human behavior, she said.

“We’re trying to anticipate how people are going to act and how people are going to react. Regarding both consumer and business confidence, there’s a psychological element of how safe do they feel behaving in a certain way,” Kalambokidis said. “But there’s also the means to act. For consumers, they have to have enough money to get out there and spend.”

There are a lot of unknowns: How long the restrictions on business operations last is one. How federal money from a coronavirus relief package can be used is another.

A woman  stands while giving a presentation
State economist Laura Kalambokidis talks about the U.S. economic outlook during a press conference Tuesday with Gov. Tim Walz and MMB Commissioner Myron Frans to discuss Minnesota's budget projection.
Glen Stubbe | Star Tribune via AP, Pool

Minnesota received almost $1.9 billion to cover some of its coronavirus costs. A portion will probably be passed down to counties and cities. The rest could cover expenses the state already incurred. But it can’t be used to make up for lost revenue.

The state, local governments and even school districts could also tap into other federal emergency aid programs, but would have to provide an upfront match for a portion.

“But to maximize our federal dollars we might want to do a blend of both,” said state budget director Britta Reitan. “One applying things to the coronavirus relief fund and two also seeking FEMA reimbursement where it makes sense because maximize our available federal funds.”

Until that sorts itself out, Gazelka wants the Legislature to start searching for savings. He said the Walz administration should dive back into contracts for tens of thousands of state employees to freeze pay. Those deals are awaiting the Legislature’s ratification.

Carrie Klumb is an epidemiologist at the Health Department, where she’s been for 13 years. She’s been working longer hours lately, including a day each weekend. In addition to her normal role in rabies surveillance, she’s on a team that helps monitor health workers exposed to COVID-19 for possible infection and provide advice to facilities.

“So, it really is all hands on deck. I was at the Health Department for H1N1, and I can say there is absolutely no comparison, Klumb said. “I have never seen anything like this before.”

It would be discouraging if raises negotiated in good faith a year ago were yanked back now, Klumb said.

“We work hard and really care about what we’re doing,” she said. “I think it would be sort of bad for morale and be disappointing for folks if that were to be the case. And to think people didn’t value the work we’re doing is how it would feel.”

Correction (May 7, 2020): A previous version of this story stated the wrong date for the end of Minnesota’s remaining budget. The story has been updated with the correct date.

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