Caution in the face of a hopeful budget forecast
Pioneer Press Editorial, February 29, 2012 –
Here’s what stood out in the latest Minnesota budget forecast, issued Wednesday by the Minnesota Management and Budget Office:
— Things are getting better here.
— They’re still not great.
— The state is projected to end this biennium (2012-13) in the black.
— But the early forecast for the next (2014-15) suggests a deficit between $1 billion and $2 billion.
— Uncertainty about the federal budget mess and the impact of health-care legislation is a drag and a risk.
Wednesday, MMB projected a surplus of $323 million for the current two-year budgeting period. That’s on top of a surplus of $876 million projected in November. There’s no extra money, however; all of that is committed to restocking the state’s emergency fund and to begin repaying the money the state borrowed from public schools to close last year’s deficit.
The surplus comes from a small increase in tax revenue and a larger decrease in spending, mostly in Health and Human Services. So as of now, general fund spending for 2012-13 is projected to be $33.76 billion on revenue of $33.79 billion.
Higher revenue, lower spending, that’s good news, and we hope the economic recovery keeps building. Minnesota’s recovery is ahead of the nation’s overall, and there are hopeful signs in many places.
Still, there’s cause for concern and caution and continued spending restraint.
Even as the economy recovers, the larger trends that will strain our public budgets continue. The aging of the baby boom, troubles in the future workforce, the crush of federal debt, all of these mean we should cheer every bit of good news as it comes along but not be seduced by it – again.
This isn’t the first recession, nor the first time that observers with a longer view have urged Minnesota policymakers to get serious about spending reform and tax reform. The pattern in recent decades – and perhaps in all of human nature – has been to get serious about roof repairs when it’s raining hard, but to quickly get unserious when the clouds pass. That’s a risk this time, too.
Fortunately or unfortunately, trouble’s not far behind us, nor too far ahead. Without changes in policy, state budget deficits may well return as soon as 2014. And whatever changes in federal policy that happen – cuts in the rate of spending growth and, likely, tax increases – reckoning with the federal deficit and debt will be costly.
As MMB’s forecast observed: “Over the next decade, if the U.S. government does not achieve a stable debt-to-GDP ratio, federal borrowing is likely to drive interest rates higher, increase costs on the debt and crowd out private investment.”
Things are better here, but they’re still not great. One good way to increase the odds of future surpluses is to keep a lid on public spending.