On July 31, Minnesota Management and Budget (MMB) provided an update on state tax collections, and—for the first time since COVID-19 emerged—provided an estimate of the impact the pandemic could have on the state budget during the 2022-23 biennium.
The updated revenue report shows state tax collections have remained roughly in line with what the agency predicted back on May 5, when it projected a $2.4 billion deficit for the remainder of the 2020-21 biennium. The July 31 updated forecast shows general fund receipts just 0.3% lower. This is a stagnant but grim budget outlook for the rest of the 2020-21 biennium. What is new is that last Friday’s update also included a planning estimate for the 2022-23 biennium showing a deficit of $4.7 billion.
This planning estimate comes with a number of caveats. First, it is based on the May 5 budget projection, meaning that it is built on economic assumptions that are only current as of the end of April 2020. Second, a planning estimate does not have the same weight and accuracy as a full forecast. That said, these figures are still significant because they are the first official numbers the state has announced for 2022-23.
Some legislative leaders and members were anticipating a more comprehensive revenue and budget forecast that would go into detail on the 2022-23 biennium. Senate Finance Chair Julie Rosen (R-Vernon Center) wrote a letter with other Senate Republicans asking MMB Commissioner Myron Frans to honor previous commitments he had made to prepare a full forecast in August to allow policymakers a more accurate glimpse at the state’s fiscal situation. The next state budget forecast is scheduled for November (typically released during the first week of December), but Senate Republican leaders argued that the unprecedented challenges presented by COVID-19 warrant an earlier look, and a simple planning estimate is not sufficient.
The timing of the July 31 revenue report is also significant because it was completed in advance of a state bond sale that is scheduled for August. This is also the reason it is nearly impossible for the state to pass a new bonding package during a special session anticipated to take place late next week, as Governor Tim Walz extends the peacetime emergency declaration related to COVID-19 that has been in place since mid-March.
As we have reported previously, the August bond sale triggers a period of time where the state cannot make significant changes to its fiscal situation, leaving only a window of time in September or early October for a bonding bill to pass. For a more thorough explanation of these dynamics, you can refer to a letter Gov. Walz sent to legislative leaders, which was obtained by the CGMC this week.