Minnesota Management & Budget (MMB) will release its November Budget and Economic Forecast today. We will have to wait till 11:30am for full details, but the headline number is striking:
Strong collections and lower-than-projected spending add to the FY22-23 surplus. Economic headwinds lower expected growth but large leftover surplus and healthy net revenues in FY24-25 create estimated $17.6B available for budget.
Check back after 11:30am.
At the end of the 2022 session, MMB forecast a budget surplus of $12.1 billion for the 2024-25 biennium. Today, that forecast surplus has risen to that headline figure of $17.6 billion.
As Figure 1 shows, this is driven by a much higher forecast for revenues carried over from the 2022-23 biennium in the Beginning Balance. At the end of the session, this was forecast to be $10.4 billion, now it is forecast to be $15.2 billion, an increase of $4.8 billion or 87.1% of the $5.5 billion increase in the Budgetary Balance
Changes in forecasts for revenues and spending, by contrast, account for very little of the change in the forecast for overall Budgetary Balance. Forecast Revenues are now forecast to $410 million higher and Projected Spending $600 million lower.
What increase in revenues is forecast, MMB sees coming from higher forecast Corporate Franchise Tax revenues. In the 2024-25 biennium, these are now forecast to be $832 million higher than they were at the end of the session, as Figure 2 shows. Together with forecast increases in Non-Tax Revenues (up $701 million) and General Sales Tax revenues (up $92 million), this offsets falls in forecast revenues from other taxes, especially Individual Income Taxes, where revenues forecasts are now $975 million lower than they were at the end of the session.
The decreases in forecasts for spending are primarily driven by falls in forecast Health & Human Services spending, as shown in Figure 3, which are $722 million lower than at the end of the session. This more than offsets modest increases in other categories.
To highlight “structural balance,” Figure 4 “shows forecast revenues and projected spending and excludes the impact of balances from prior years and reserves.” MMB forecasts:
In the FY 2024-25 biennium forecast revenue is expected to exceed base level spending by $6.327 billion and in FY 2026-27 the structural balance is expected to grow to $8.430 billion due to revenue growth outpacing base level spending growth.
There is a good degree of uncertainty around these forecasts, stemming primarily from the uncertain outlook for the state and national economy. Nevertheless, as legislators gather in St. Paul in the New Year, these are the numbers they will be tussling over.