Minnesota facing $4.7 billion shortfall in future budget fueled by pandemic

Minnesota lawmakers are facing a potential $4.7 billion deficit in the next two-year budget as the coronavirus pandemic continues to gobble up more resources than the state gets in revenue.

Minnesota Management and Budget Commissioner Myron Frans said in a new planning estimate Friday that the pandemic has made economic conditions "extremely volatile." The revenue update, he added, "gives us more information about the budget problems we need to solve during this current biennium and the next."

The updated numbers for 2022 and 2023, coming ahead of a state bond sale, continue a stunning deterioration of the state's finances in a matter of months. A February economic forecast showed the state had a projected $1.5 billion budget surplus for the remainder of this budget cycle, which ends July 2021. But a May budget update showed the state now faces a $2.4 billion deficit this budget cycle.

"Minnesota is not alone. States across the country are facing large budget gaps during this global pandemic," Gov. Tim Walz said in a statement. "We have challenges ahead, but we will continue to make smart fiscal decisions and request aid from the federal government to help our state manage this difficult time."

Minnesota has received more than $2 billion from the federal government in coronavirus relief, but that money cannot be used to fill gaps in revenue collections. The state's total two-year budget is roughly $48 billion.

Unlike many states, Minnesota has a budget reserve that's filled automatically when revenue comes in higher than expected. Over the years, it's grown to nearly $2.4 billion, with $350 million in a cash flow account. But as the deficit grows, lawmakers are facing potential budget cuts or calls for tax increases to fill the gap. Lawmakers are constitutionally required to pass a balanced budget for 2022 and 2023 by next summer.

Minnesota lawmakers adjourned the regular legislative session on May 18 without addressing the expected deficit for this budget cycle. Two summer special sessions of the Legislature, triggered as Walz extended the use of his emergency powers for the pandemic, were overshadowed by a debate over police reforms in the wake of George Floyd's death.

"Minnesota is staring down a massive budget deficit, and it will only get worse if we bury our heads in the sand and pretend it doesn't exist," House Minority Leader Kurt Daudt, R-Crown, said in a statement.

"House Republicans will fight to protect Minnesotans from harmful tax hikes," he continued. "Will Gov. Walz and Democrats work with us to protect taxpayers, or demand tax hikes to close the deficit?"

Briana Bierschbach • 651-925-5042

Twitter: @bbierschbach