Just as Minnesota lawmakers dive into their debate over a $900 million projected budget surplus, state finance officials warned Monday that revenues had slipped a bit and signs of economic weakness were lowering growth expectations.
A quarterly economic update from the Department of Minnesota Management and Budget detected an $11 million slide in tax collections for February and March versus earlier estimates. That amounted to a 0.5 percent drop in the context of $2.4 billion in revenue. But the state’s workhorse tax, the individual income tax, had a steeper fall of $69 million, which was tempered some by gains in the corporate tax.
There were notes of caution throughout the report. Economic growth projections in several areas were sliced by consultants advising the state.
“MMB’s macroeconomic consultant IHS Economics has lowered its forecast of real GDP growth in the first quarter of 2016 to just 1.2 percent (annual rate) from 2.4 percent expected last February, with trade subtracting more than half a percentage point from the overall rate,” the report said.
Not all was downcast. Report authors said the labor market remains solid, oil prices have begun to rebound and retail sales and the housing market appear sound.
These reports aren’t binding on lawmakers when setting the budget because they provide fewer benchmarks than the twice-yearly economic forecasts. The quarterly updates don’t analyze state spending patterns.
Still, it could bolster arguments from some lawmakers that a bigger share of the $900 million surplus get left untouched or mostly committed to proposals with non-recurring costs.
House Republicans released their budget framework last week, which called for no net increase in state spending. The House GOP majority wants to put surplus dollars into tax cuts and transportation projects.
Majority Senate Democrats plan to outline their own budget blueprint this week.