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States' budget challenges

  • Blog Post by: Lori Sturdevant
  • January 21, 2013 - 10:54 AM
On Tuesday – for the fifth time since 2003 – a Minnesota governor will present biennial budget recommendations that include measures for closing a forecasted deficit. This gap on the state’s forecasted fiscal 2014-15 balance sheet is $1.1 billion  -- $2.1 billion if one includes inflation in expenditures, $3.2 billion if one adds money owed to school districts.
 
Gov. Mark Dayton isn’t alone in facing this budget-making challenge.  As the cover story in the January issue of State Legislatures magazine reports, state tax revenues are growing again, but not fast enough to close what on average is a 6 percent gap between state and local costs and receipts.  No other modern-era recession has taken as prolonged a toll on state bottom lines.
 
Many states have employed the temporary measures that Minnesota has used to keep their books in the black since the Great Recession hit in 2007-08. But the public sector has also cut spending, and those cuts alone have been deep enough to be responsible for the economy’s continued sluggishness. Private sector growth since 2010 has returned nearly to prerecession levels, the report says, while the public sector has contracted by roughly 2 percent per year in real terms.
 
Five years after the recession, the economy is finally quickening. Some state revenues are climbing. But out-of-control Medicaid costs, expected federal spending cuts and beleaguered public pension balance sheets are a drag on most state’s bottom lines, Minnesota’s included.
 
Dayton and the Legislature’s new DFL majorities have said they aim to erase the red ink for good this year. They should keep an eye on the rest of the country as they do. Just as misery loves company, so does recovery – and the price a state pays for being a tax-and-spending outlier is higher today than ever before.

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