The November state economic forecast: What are the takeaways?

The State Economic Forecast came out on Thursday, December 5, 2013. This is kind of the preview of the all important February forecast that will happen this year close to the beginning of the legislative session.  It will  set the expectations for whether the session will be about tax cuts or spending increases. Given that last session, the Governor and the legislature passed a $2.1 Billion dollar tax increase and that it’s an election year, it’s not likely that there will be another tax increase.

In fact, the first thing that Governor Dayton said in his reaction to the November forecast was there since there was a Billion dollar surplus, was that he was looking to repeal some of the taxes that he put passed in 2013, namely, the business to business taxes and tack on some “middle class tax relief” by getting rid of the “Marriage Penalty”

We agree with the Governor and given the state budget surplus we think it’s great that he wants to repeal some of the taxes he signed into law last year. A billion dollar surplus in the wake of raising taxes over two billion dollars means that Minnesotans were overtaxed by a billion dollars.

Along with all of the other candidates for Governor we will be sending him a copy of the taxpayer protection pledge, which is not “our pledge” but a pledge between a candidate and the citizens of Minnesota which states that the candidate will not agree to increase taxes. From what Governor Dayton said in front of the cameras on Thursday, he agrees that we don’t need another tax increase.

We will be watching the Governor to see if he keeps his promise. The House which is up for re-election will probably also like to see at least some of those taxes repealed but in the Senate there could be some resistance among members who have promises to keep. And miles to go before the next election.

We also won’t forget that the Governor and the Legislature went out of their way to put the state budget before the family budget.

Republicans in the House and Senate are pointing out that it is still thanks to them that we have this surplus at all, if you count the 2-year period in which the House and Senate were controlled by Republicans plus the 2 terms of Governor Tim Pawlenty. Budget Commissioner Showalter essentially made the same point when told the forecast press conference that this forecast doesn’t actually capture much, if ANY of the effect of the new taxes. The taxes went into effect July 1 and only SOME of that revenue is part of the General Fund.

And the general fund is all we are talking about here, when we talk about the “State Budget.” The general fund is about a third of all of the money that the state spends. The rest comes from the Federal government or other special taxes and fees which go directly into other funds, not the general fund.

Apart from the news about the surplus there was also news about how the plan was to use some of the surplus to finish paying off the school shift. They also paid back a shift from the airports funds done in a previous year.

The cost to finish paying back the K-12 shift will be $224 million. $2.4 billion had already been paid. Only about 7% of the entire shift remained with this final payment.

They can take credit for making the final payment but it was the previous biennium’s budget that made the return of most of this money possible, a GOP budget. One of the most striking things about this and other recent putatively “informational” briefings by the Dayton Administration is how partisan they have become. Budgetary shifts—a relatively common tool in the hands of BOTH Republican and Democrat controlled governments in Minnesota are now decried as “gimmicks” and somehow harming the public.

When asked about how these particular transfers will work, Commissioner Schowalter admitted that these shifts are “truly an accounting issue.’ Nobody is going to be getting any checks from the state.

So, essentially what has happened here is that one level of government has reimbursed some other levels of government for money that it had but was not using. And they did it by raising taxes on Minnesota families and businesses struggling though this sluggish economic recovery. That’s not the stuff of high drama that the Dayton Administration and its promoters would rather have us believe.

We will have to wait until the February forecast to see if some of the income tax related increases such as the 4th tier tax are going to have the effect that was anticipated.  Corporate taxes and Individual Income taxes are some of the most volatile parts of the revenue stream that the state receives. The state economist stressed how fragile this recovery still is, with only modest growth predicted in ’14 and ’15.  

To some extent we are hostages to the drama playing out in Washington, thanks to the fact that we are more dependent than we used to be on money from the Federal Government in nearly every part of our budget.

Finally we have some more information about financing of the Vikings stadium, conveniently only two days after the groundbreaking extravaganza. Commissioner Schowalter explained that the low figure in the Stadium reserve account was due to the downward adjusted forecast of the gambling revenues destined to fund the stadium (e-pulltabs, e-bingo and a Vikings themed state lottery game) and the tobacco tax revenues that have now “stabilized” at a lower than originally predicted amount. He said that would change as the revenues from the Affiliate tax “came on line.” Thus we have confirmation that what were to be a “backup” source of revenue for the stadium is now being counted on. This tax, on businesses with branches in other states (that may have NO connection to Minnesota) is punitive and encourages businesses in that situation to move the main office elsewhere. In spite of some people’s attempts to argue that cigarette smokers (who tend to be lower income) are not paying for a billionaire’s stadium. It appears that YES, yes they are!