Lawmakers and UMN officials weigh in on projected $118 million budget deficit

The forecast anticipates the negative balance will grow to $586 million in the 2020-2021 biennium.

by Michael Achterling

The Minnesota state government will face an estimated $188 million deficit over the current two-year budget cycle, the Minnesota Office of Management and Budget announced Tuesday.

The forecast was met with concern, and some apathy, by University of Minnesota officials and state lawmakers. 

“It’s really disappointing. It’s disappointing when people don’t understand the implications it has when we decided to make drastic changes,” said Rep. Ilhan Omar, DFL-Minneapolis.

The deficit could grow to $302 million in February, according to MMB, as the Legislature is expected to pass a projected $114 million in operational funding for itself as a result of a line-item veto of legislative funding issued by Gov. Mark Dayton in May.

The projected deficit could have implications for the University of Minnesota, as the institution enters the 2018 legislative session with $238.5 million in capital requests.

University Chief Government Relations Officer J.D. Burton said he doesn’t think the deficit will change the school’s financial standing with the Legislature. 

“The state made a pretty strong statement last session that the University continues to be important with an increased appropriation,” Burton said. 

The University requested a $147.2 million increase to its biennial budget last session, which the state granted roughly a third of — $54.6 million.  

Spending in the 2018-2019 biennium is expected to be $398 million higher, according to MMB, due to a greater forecast of special education spending and unspent appropriations from 2017 to be spent next year.

According to the forecast, the deficit was created in part by lower projections of sales, property and corporate franchise taxes over the biennium as well as a reduction of $461 million in individual income taxes.

“We had a large tax bill that had a lot of tax breaks,” said Sen. Kari Dziedzic, DFL-Minneapolis.

The omnibus tax bill, passed and signed by Gov. Dayton in May, called for $660 million in tax relief for the 2018-2019 biennium.

Uncertainty around inflation, capital gains and federal policies — like the tax bill heading to conference committee in the U.S. House and Senate — could pose significant risks to the forecast.

“The sky is not falling,” said MMB Commissioner Myron Frans at a press conference Tuesday. 

While the projected deficit is “still significant,” Frans said he wants to get more information and wait until the February forecast before recommending changes to overcome the shortfall.

Rep. Greg Davids, R-Preston, chair of the House Taxes Committee, said the early forecast shouldn’t raise concern. 

“November forecasts are never accurate,” Davids said. “I’ve been [in the Legislature] since 1991, and I’ve never seen an accurate November forecast.”

MMB’s February forecast will give a clearer look at the budget, Davids said, adding that the $188 million deficit would be easy to solve through reductions in spending.