All Things Public, 12/5: Budget Forecast Time

All Things Public 12-5

Allies and Advocates!

Hello and happy December! In this newsletter, we give our analysis on some of the biggest headlines affecting our state.

Budget Forecast Time!

Today, the Minnesota Management and Budget office released the November Budget and Economic Forecast. Here are some topline takeaways:

• An immediate one-time surplus of $2.4 billion for the 2024-25 biennium, which is almost $600 million more than expected.
• A projected shortfall of just under $3 billion by the close of the 2028-29 biennium with $935 million of discretionary inflation included.
• For 2028-29, our structural imbalance — the difference between money coming in and going out — has increased by about $2.4 billion, from just under $3 billion to about $5.4 billion. Around $1.8 billion of this is due to increased forecast spending and a little over $500 million is due to decreased revenue expectations.

Overall, this is pretty bad news. The impact of these higher projected spending and lower projected revenues is to effectively erase the impact of 2025 legislative changes that were aimed at closing our long-term structural imbalance. The predicted shortfall is still years away, but continued growth in costs in Medicaid and other HHS programs is revealing itself to be an enormous, growing challenge. If you don’t want to cut services in the near future, or want to pass new investments in Minnesotans’ growing needs, we will need to raise significant revenue.

On the other hand, we are not alone. The vast majority of states are facing decreased revenues, and many are in a similar position than us with a projected shortfall. We Make Minnesota will be diving deeper into this forecast and the source of growing HHS costs in future newsletters and events.

In the News: Chamber of Commerce says “Minnesota Economy Bad”

You might have seen the Chamber of Commerce report last week that shows slow growth in Minnesota’s economy. The Chamber ascribes this stagnation to lost residents; federal policy such as tariffs and workforce cuts; and the lack of easy room to grow given our already-strong economy. Yes, we should be concerned about per-capita income increasing slower than other states, but some of the other states had a minimum wage of $2.75 just a decade ago, and can grow faster due to their lower starting point.

While the report cites the expected solutions of deregulation and lower taxes, it also acknowledges cost-of-living challenges in housing, healthcare and childcare. Despite slower growth than other states, Minnesota remains a desirable place to live and work because of our investment in public services - that’s why we retain a large number of Fortune 500 companies and have a better quality of life. This has always been our competitive advantage and we need to keep investing in people and communities to maintain it.

Wealth inequality is also an economic factor that you won’t see the Chamber talking about. This year, inequality grew to the point that the wealthiest 1% of Minnesotans own a third of our state’s wealth. In many cases around the world, increased wealth inequality has been shown to slow economic growth. This is especially true when the wealth of the top 1% booms and hoards while lower-middle class families have less money to spend. Business can’t be sustained with less consumers, because less people will have money to spend. (Source)

In summary, rather than answering a slowing economy with tax cuts and deregulation, we should be talking about:

1. Wealth inequality, how to raise wages and combat corporate greed, and;

2. The downstream effects of harmful federal legislation that has plunged every state into economic chaos.

3. The importance of strong, sustainable growth as opposed to GDP for its own sake. As Rep. Aisha Gomez, “economic growth” can include car crashes, house fires, and predatory loan schemes, so not every dollar is equal.

We share this analysis because we’re sure a lot of you will be hearing about this report from the Chamber as the bedrock of their anti-tax legislative platform. If you have any questions about further bringing in this analysis when asked about it, please reach out.

Treasury Investigates Minnesota Fraud Case

Fraud stories continue to bring in headlines, especially as Trump directs the Treasury to investigate whether Minnesota tax dollars have been sent to foreign terrorist groups. It’s a reach and an attention-getting notion from the right because some of the fraudsters were Somali. Now it has become a pretext for ICE to target another group of our immigrant neighbors. That being said, I’m including this story in this newsletter because fraud narratives are the right’s best argument for cutting public funding and sowing distrust in government.

We need to be mad about fraud, and we can’t avoid talking about it. We have to be responsible stewards of Minnesota tax dollars - making sure that our investments directly benefit Minnesotans who need it.

Feeding Our Future is an example of how hastily distributed band-aid grants to unaccountable non-profits was exacerbated by a lack of oversight by our state agencies. Once red flags were raised by the Minnesota Department of Education due to a spike in claims, Feeding Our Future sued the state agency to keep the funds flowing.

From FoF, to Housing Stabilization Services, to Autism Services, to CCAP - Minnesota has not been protective enough of our public funds. Criminals who took advantage of our slow system and lack of oversight pocketed millions of dollars at the expense of those who needed them. Every case of fraud builds a narrative that conservatives use to defund and destroy essential government services. Highlighting fraud cases is one way that conservatives take the high ground on “economic responsibility,” while they remain complicit or even primarily responsible for the weakening of public institutions and many of them participate in crony capitalism, giving handouts to wealthy friends and corporations.

It’s imperative that we build back trust in our public systems. Minnesotans deserve to know that their elected leaders care, and that they’re doing everything they can to avoid fraud in the future. We need a strong state budget that can meet peoples’ needs - and we can’t have people thinking our state budget is a leaky bucket. If you want to be part of our push to directly address and prevent fraud, please reach out.

States Resist Federal Tax Cuts

As federal tax cuts threaten states’ budgetary bottom lines, we’re seeing some states moving to decouple themselves from federal laws. Delaware just saved themselves from a $410 million shortfall by refusing to conform to corporate tax breaks included in the federal budget bill. Pennsylvania did the same, while also passing a working class tax credit for low-income individuals. Keep this in mind as conformity discussions come up - the fight against these corporate tax breaks were successful because state legislators positioned themselves against the large handouts to the ultra-wealthy and corporations.

For more information on current tax news from other states, read the Institute on Taxes and Economic Policy’s State Rundown.

Reading Material of the Week

Speaking of ITEP, if you haven’t yet, please take some time to read their annual “Who Pays?” report. It’s a great resource for any student of taxes and public funding, and reviews how states stack up regarding inequality and taxes.

Thank you for reading this newsletter, and as always, stay in touch!

Eric and Lindy