Minnesota's top budget official is expecting the state to slip into the red for the first time in years, as revenue drops and costs increase to battle the coronavirus pandemic.
An updated budget projection on Tuesday is likely to show the first notable deficit since the state crawled its way out of the Great Recession, triggering a little-known state law that allows lawmakers to dip into a more than $2 billion reserve fund to stop the bleeding.
"I can't imagine we're not in a deficit situation," said Minnesota Management and Budget Commissioner Myron Frans, qualifying that he hasn't seen the final numbers yet. State officials usually get economic forecasts twice a year, in February and November. But the financial uncertainty caused by the pandemic prompted an unprecedented additional budget projection update in May.
Without an updated projection, lawmakers legally can't dip into the state's budget reserve account, which was created in 2014 after years of patching deficits. The budget reserve law required automatic transfers to an account when the state budget was overflowing.
That reserve is now up to $2.359 billion, Frans said, not including a more flexible cash-flow account of $350 million.
"Just think what it would be like if we had not put that money away and we had given it back in tax relief. Just think what we would be doing right now," he said. "I feel sorry for states that have not prepared themselves for this like we have."
It's a dramatic turnaround from February, when the state's economic forecast projected a $1.5 billion budget surplus. Since then, positive cases of COVID-19 in the state have topped more than 5,000 and Gov. Tim Walz shuttered schools, bars, restaurants and other public spaces to slow the spread of the virus. More than 580,000 Minnesotans have filed for unemployment since mid-March.
Tax collections from February and March were $103 million less than projected in the economic forecast, and tax filing deadlines have been delayed into the summer.
