The only thing certain about state budget forecasts is that they are wrong, state economist Tom Stinson often says. But seldom has more uncertainty been attached to one of Stinson's forecasts than to Wednesday's projection of a $1.1 billion deficit in 2014-15 (or $2 billion, if inflation is appropriately factored in).
That forecast is based on the increasingly shaky premise that automatic federal tax increases and spending cuts will not commence at year's end -- that is, that the nation won't go over the so-called "fiscal cliff."
As the monthly calendar turned with no deal in sight in Washington, Stinson and his staff decided to hedge their bets. They made some hasty assumptions about what the automatic federal measures would mean for the economy and the state's bottom line in 2013 and beyond.
The result is sobering: Minnesota is still slowly recovering from the Great Recession, and gradually climbing out of the fiscal hole state government dug for itself beginning in 2008. The state's revenue recovery rate nearly matches the forecast average for the 50 states. But the state's recovery isn't sufficient to eliminate a deficit in 2014-15. Account for inflation in expenditures -- as sound budgeting requires, but legislators have forbidden since 2002 -- and the red ink is projected to persist past 2017.
The state outlook gets much worse if automatic federal spending cuts and tax increases proceed as slated after Jan. 1. The 2014-15 deficit would then balloon to $2.8 billion (omitting inflation), as personal incomes in the state fall off by 4 percent and the state unemployment rate, now at 5.8 percent, surges back above 7 percent, Stinson projected.
Those figures give Minnesotans fresh reason to call on the White House and their congressional delegation to remove the threat to the economy. Going over the fiscal cliff would be no joy ride for this state.
But Minnesotans should heed the rest of the story the numbers tell: Too much reliance on one-time gimmickry is keeping the state budget in the red long after the end of the 2008-09 recession. That's not the way to run a state whose services are vital to preserving prosperity. The 2013 Legislature's Job One must be setting the state's fiscal house in lasting order.
If the 2012-13 state budget had been balanced with the tax increase Gov. Mark Dayton sought, rather than by borrowing from school districts and against future state tobacco lawsuit payments, the state budget would be in the black by now. Instead, in addition to the forecasted $1.1 billion general fund deficit, the state will owe its schools $1.1 billion in "shifts," or IOUs. That's so despite the forecast's release of $1.3 billion to schools later this month, funded by previously unforeseen tax receipts in the current fiscal year.
The lingering school debt doesn't come fully due in 2014-15. But it makes a continuing claim on what would otherwise be surplus dollars that could be spent on new state priorities or problems.
It also clouds Minnesotans' understanding of their state's financial circumstances. It caused a one-time reduction in K-12 spending in the current budget period, thus enlarging the forecasted spending increase in 2014-15 and feeding claims that spending is growing too rapidly.
In fact, only human services, transportation and debt service among all expenditure categories are projected to grow in 2014-15. Human services spending remains the sorest point in the budgets of all 50 states.
To his credit, Dayton vowed Wednesday that, regardless of what the fiscal cliff brings, he won't resort to one-time gimmicks to balance the next state budget. "We are done with the gimmicks. We are done with the games," he said. "We're going to make tough decisions."
Dayton is right about the difficulty that lies ahead for him and the Legislature's new DFL majorities. The deficit forecast says that even if sweet reason prevails in Washington, the actions that will be required to stabilize the state budget won't be painless or popular. Dayton seemed to be tamping down spending expectations when he hinted that more spending reductions lie ahead. He also said a renewal of his unsuccessful call to raise income taxes on the state's top 2 percent of earners is "very likely."
We hope his 2013 tax reform notions are more nuanced than the "tax the rich" slogan of his 2010 campaign. And we hope that those who seek more state spending in 2013 bring to the Capitol both realistic appetites and fresh ideas for deriving more public good from still-scarce public dollars.