Report finds that Minnesota’s tax revenues have seen the second largest decline in the country against their trend

There has been a steady stream of stories in Minnesota’s media relating that the state government’s revenues have been consistently coming in above forecast. This is true. As Minnesota Management and Budget announced in May:

Net general fund revenues totaled $3.7 billion in April, $16 million (0.5%) above forecast. Net receipts from individual income and sales taxes for the month were less than forecast, while net corporate and other tax revenues were higher than expected. For fiscal year 2024, year-to-date receipts are now $24.7 billion, $258 million (1.1%) more than forecast.

One doesn’t like to be a party pooper, but these stories seldom point out that other states are seeing similar revenue booms. As I wrote back in December 2022:

We should also note that lots of other states are also forecasting budget surpluses. Differences in budgeting processes mean that these numbers are not directly comparable with each other, but Wisconsin is forecast to have more than $6.5 billion left over at the end of its 2022-2023 biennium. Iowa is set to end Fiscal Year 2022 with a balance of $1.91 billion in the General Fund, $830 million in reserve funds, and $1.06 billion in the Taxpayer Relief Fund. South Dakota had a surplus of $115.5 million for the 2022 fiscal year. North Dakota is likely to have a $750 million surplus by the time the two-year budget cycle ends in June next year. 

A new analysis from the Pew Charitable Trusts’ Fiscal 50 project puts Minnesota’s numbers in further context.

In Tax Revenue Trends, Pew measured the difference between recent state tax collections and a 15-year trend level, adjusted for inflation and seasonality. It finds that state tax revenues outperformed their long-term trends in 32 states. Alaska was way out in front, collecting more than 11 times, 1,041%, more than its long-term trend level. The states with the next-highest collections compared with their long-term trends were Wyoming (37.7%), New Mexico (32.5%), West Virginia (10.6%), and Montana (10.0%).

Who was doing badly? California came bottom with revenues 16.2% below their trend. And, just above the Sunshine State in 49th place is Minnesota, with revenues 4.9% below their trend, as Figure 1 shows.

Figure 1

Source: Pew Charitable Trust

As Figure 2 shows, Minnesota’s revenues were doing well compared to their trend until the fourth quarter of 2022, since when they have gone off a cliff.

Figure 2

Source: Pew Charitable Trust

As long as actual revenues continue to come in above their forecasted levels we don’t need to panic. But that trend is one to watch.