The quick turnaround of the Minnesota economy, as well as reduced government spending, has helped the state swing from a deficit to a $1.6 billion budget surplus, the Minnesota Management and Budget office said Friday.
The updated budget and economic forecast now sets the stage for lawmakers to negotiate a new two-year budget that will fund everything from schools, health and human services and the state’s COVID-19 recovery.
DFL Gov. Tim Walz has no plans to adjust his proposed $52.4 billion budget proposal, he said Friday.
Meanwhile, Republican and Democratic-Farmer-Labor legislators are on divergent paths for how to best spend the surplus. Republicans are standing firm against any tax increases, as Walz has called for, and Democrats meanwhile say the surplus should be spent to help the lower-wage workers in industries hardest hit by the pandemic.
The economic forecast notes the “K-shaped recovery,” meaning that some sectors and workers have recovered more quickly than others. High-income workers faced the smallest drop in employment last April and May, losses largely recovered by June. Low-income workers, in comparison, experienced a dramatic loss of jobs, gaining back some by early August, but lost jobs again in the fall. Low-wage workers are still experiencing higher joblessness compared with before the pandemic.
Jobs in bars, restaurants and other hospitality establishments have suffered the most.
“Employment in the leisure and hospitality industry fell from 16.9 million to 8.7 million in March and April, bottoming out at just over half of its pre-pandemic workforce,” the forecast says. “At the end of January, leisure and hospitality employment was still 23% lower than it was in February, while employment in all other sectors was only 4.4% lower.”
As of December, Minnesota had 248,000, or 8%, fewer jobs than in February 2020.
The pandemic has caused a large drop in school enrollment as parents have pulled their kids from public schools, electing to educate them at home or enroll in private schools. Spending on education is forecasted to be $20.4 billion, $165 million less than the November forecast, in the upcoming biennium.
Meanwhile, health and human services spending is also reduced because of federal aid that provides matching federal funds for medical assistance through the end of the year.
“While it’s encouraging to see Minnesota’s financial situation improving, the state budget has been underfunded for over 20 years. Understaffed classrooms, crumbling infrastructure, and inaccessible healthcare won’t be solved by one February forecast,” said Minnesota AFL-CIO President Bill McCarthy.
“Lawmakers should realize that while working Minnesotans have sacrificed more than ever, the rich and big corporations have become richer over the course of the COVID-19 pandemic. When it comes to measuring whether working families can put food on the table, if our students and teachers have the classroom resources they need, the strength of our infrastructure, and our persisting racial and economic inequities; Minnesota still has a serious deficit… It’s time for lawmakers to join working people and Governor Walz in calling for the richest Minnesotans and big corporations to finally pay their fair share in taxes.”
Senate and House Republicans, already opposed to a series of tax increases Walz proposed last month, have shut the door on efforts to raise revenue.
Walz did not say he was prepared to take off the table his tax plan, saying he was open to further discussing them with legislators. DFL legislative leaders back raising revenue.
— Minnesota Reformer