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Serving Northern St. Louis County, Minnesota

Incoming governor will have huge surplus to work with

Marcus White
Posted 12/12/18

ST PAUL - Incoming DFL Gov. Tim Walz will have $1.5 billion extra dollars to work with as he prepares his first budget in the coming months. The good news could be short-lived, however, with the …

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Incoming governor will have huge surplus to work with

Posted

ST PAUL - Incoming DFL Gov. Tim Walz will have $1.5 billion extra dollars to work with as he prepares his first budget in the coming months. The good news could be short-lived, however, with the Office of Management of Budget also forecasting a slowdown in growth across the state in the next five years, which could impact future budgets.

It’s a remarkable turnaround from the $6.2 billion deficit faced by Gov. Mark Dayton when he assumed office in 2011 from Republican Gov. Tim Pawlenty.

The current economic outlook, released earlier this week, points to Minnesota’s strong job wage and job growth, outpacing the national unemployment rate by nearly one percent.

“The state continues to add jobs at a steady pace, driving the unemployment rate well below the U.S. rate,” the report stated. “Together, high demand for labor and low unemployment continue to support growth in total Minnesota wage income and wages per worker.”

The state did trail the rest of the nation in overall job growth by about one percent in the past 12 months.

Uncertainty overshadows success

Signs on the horizon suggest that the longstanding growth in the state’s economy will slow over the next few years, potentially shifting the state’s job market in the future.

“In 2020 and 2021, growth slows to 1.1 percent and 0.5 percent, respectively,” the report forecasts. “As slow labor force growth constrains job gains, we expect employment growth to decelerate to less than one-half percent in the years of our planning estimates.”

Global factors could also slow growth in Minnesota. The report said current relations between the United States and China could have major impacts on the state, driven by the uncertainty of prolonged economic tension.

Minnesota has generally been a strong exporting state, according to the budget office, with exports to foreign countries totaling more than $23 billion in 2017.

A strengthened dollar generally leads to slowed international purchases of American-made goods, such as locally produced taconite, since currency exchanges will make the cost of obtaining products more expensive. This can lead producers to seek the products from countries with cheaper currency.

Even if the economic situation in the state does sour in the coming years, the Office of Management and Budget predicts that if Walz and the Legislature maintain the status-quo, the state will continue to see surpluses well into the future. Those would diminish slowly as time goes on with fiscal year 2023 projected to have a surplus of just over $400 million.

The December forecast is just a prelude for budget talks and proposals ahead of the upcoming legislative session. Final budget negotiations won’t get underway in earnest until the 2019 forecast, due in late February or March.