Minnesota got some unexpected good news from the state economic forecast on Tuesday. An unforeseen increase in consumer spending and lower-than-projected state spending combined to wipe out what had been an anticipated $2.3 billion deficit. In its place is a modest $641 million surplus for this budget period.
That surplus serves two important purposes. Foremost, it gives the state the cushion it needs to proceed quickly with a targeted aid package aimed at those hurt worst by the pandemic — low-income wage earners and small businesses.
Secondarily, the surplus affirms that the state's decision to impose reasonable restrictions against the spread of the virus was a wise one. Those restrictions have at least helped slow the spread of the virus, without torpedoing the economy.
The fiscal situation looked substantially more dire in May, when the state took the extraordinary step of preparing an interim forecast. The state's fortunes have rebounded considerably since then, with unemployment dropping. Consumer spending is not only higher, but its pattern has shifted, with Minnesotans spending far less on services and more on goods. That has an outsized impact in a state whose tax structure is aimed more at goods than services.
At the same time, spending pressures for the state on its two biggest ticket items — schools and health care — have eased. Some of that may be attributed to individuals postponing medical procedures during the pandemic, which could make for higher demand later. But for now, it represents a significant savings.
It should be noted that the outlook remains uncertain. State officials said the path of the pandemic, the degree and swiftness of aid and the distribution of a vaccine could all affect the outcome for better or worse. While Minnesota no longer faces the mountainous long-term deficit that had been projected in May, it's still looking at a $1.27 billion deficit for the 2022-23 budget period.
The pandemic recession has not been fair in its choice of victims. Those able to work from home have faced their share of difficulties, to be sure. But those Minnesotans whose jobs or businesses depend on face-to-face contact such as in retail or restaurants have suffered inordinately.
Now that the nation appears to be on the verge of rolling out vaccines, these are the people most in need of a bridge to the day when the world is able to resume some sense of normalcy. The Star Tribune Editorial Board called earlier for a package of aid aimed at struggling small businesses. In light of the state's improved financial picture, it makes sense to add extended unemployment benefits and other targeted aid to help those who have born the brunt of this recession.
