Tuesday, February 19, 2013

State Deficit and Surplus

The three-week Minnesota government shutdown in 2011 caused huge disruption and lost revenue to the state and its employees. I know that the shutdown has been discussed at length over the past year and a half, but it occurred just before I moved to Minnesota so as a new resident of the state I was shocked and fascinated by what was happening at the capitol.

As we know, the Minnesota government shutdown because the legislature and the governor were unable to agree on a budget to address a $5 billion shortfall. The elected officials were finally able to reopen government after agreeing to cover the deficit by delaying payments to Minnesota Public Schools and borrowing against future revenue from a tobacco settlement.

What interests me now is the fact that this budget deficit actually turned into a surplus in 2011 and 2012, allowing the state to refill the cash flow account, restore the budget reserve and begin to pay back the schools. The surplus was caused by reduced spending and lower than expected costs for the Medical Assistance program that provides health care coverage for low-income adults without children. But that there is still a projected deficit for the 2014-2015 biennium: $1.1 billion, or over $2 billion if inflation is included.

As Nick covered in his post on the Governor’s proposed budget, Dayton wants to increase income tax on the wealthiest 2% of Minnesotans, provide property tax relief for all homeowners, and reduce the sales tax percentage but expand services that are taxed. This approach seems to be an effort to tackle the deficit with multiple solutions in a balanced way, but with the backlash to the proposal I wonder if the budget will be adopted in its entirety or if only pieces will be agreed on. If only pieces are adopted and no comprehensive plan is put in place, it seems that the deficit will continue to be a problem for the state and I wonder how long Minnesota can delay coming up with an actual solution.

Here are some more interesting articles about the shutdown:

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