By the numbers: Minus one-time money, Minnesota’s next budget deficit will be three to four times worse

The likely impact of the fiscal hole left in Minnesota’s finances when Gov. Tim Pawlenty exits stage right a year and a half from now is so big it seems practically unfathomable from here. Around the Capitol, only fiscal staffers and a handful of legislators have really begun to reckon with it. But a little back-of-napkin arithmetic is good enough to suggest its outlines.

In nominal terms, the deficit that the state of Minnesota is facing in the out years of 2012-13 ($7.3 billion when expected inflation is counted, according to a legislative fiscal analysis released last week) looks plenty formidable. Yet also familiar: Hasn’t the state already licked a $6.4 billion deficit? And with less onerous cuts than many feared? To the casual observer, that extra $1 billion in red ink amounts to a difference of degree–and hints at a budget crisis in 2011 that’s more severe than the one Minnesota confronted this year, but hardly different in kind.

Unfortunately, those top-line numbers are entirely misleading. Once you begin putting them in context, any perceived similarity in scale between the crises of 2009 and 2011 quickly falls away to reveal an absolutely unprecedented mess in the making.

For overview purposes, start with the relative size of the two deficits as a share of the general fund dollars the state was projected to collect and spend in the prior biennium. (This measure isn’t synonymous with the state’s base budget, due in part to one-time cuts through unallotment in both ‘08-’09 and ‘10-’11, but it comes relatively close; call it the revenue base.)

• Final 2008-09 collections through June 30 of this year are expected to come in at $33.9 billion. The deficit for the 2010-11 biennium that starts on July 1 was $5.9 billion (the widely reported gross deficit figure of $6.4 billion included nearly $500 million in FY2009 revenue shortfalls), or about 17 percent of the prior biennium’s revenues and expenditures.
• Final 2010-11 collections are currently projected to be in the neighborhood of $31 billion. The $7.3 billion deficit prediction is about 24 percent of that.

So even at the most superficial level, the next biennium’s deficit is a 40 percent bigger share of the prior budget period’s revenue base than this year’s deficit.

Now on to the numbers that matter most: one-time dollars that were available to solve the ‘10-’11 budget deficit and won’t be there for ‘12-’13. They come to around $3.8 billion, broken down as follows. (You’ll note that the stimulus dollars reflected here add up to $2.1 billion of the approximately $2.6 billion Minnesota received from the American Recovery and Reinvestment Act; an additional $500 million or so in FMAP/Medicaid money came in FY2009.)

$5.9 billion (gross deficit FY10-11)

-$1.3 billion (stimulus FMAP/Medicaid $)

-$0.8 billion (stimulus fiscal stabilization $)

-$1.7 billion (schools shift)

$2.1 billion ($1.1 billion = continuing cuts; $1 billion = one-time unallotment cuts)

That $2.1 billion figure represents the amount Minnesota actually had to cut after one-time moneys were applied to the total deficit for the ‘10-’11 biennium. Hearkening back to the 2008-09 benchmark of $33.9 billion, that’s about 6 percent of the prior biennium’s collections and expenditures.

So now we can proceed to compare the adjusted ‘10-’11 deficit to the projected ‘12-’13 deficit:

• In sheer inflation-adjusted dollars, the $7.3 billion ‘12-’13 deficit is equal to 3.5 times the net $2.1 billion hole that the Legislature and the governor had to make up this year for ‘10-’11.
• As a share of the prior biennium’s collections and expenditures, the projected 24 percent ‘12-’13 shortfall is equal to 4 times the net 6 percent ‘10-’11 deficit.

These are difficult numbers to wrap your head around. For perspective’s sake, let’s consider where the deficit for ‘12-’13 would stand even if the DFL-controlled Legislature’s tax increases had passed into law (and actually raised as much as advertised, which is no sure thing in a diminished economy).

• If the tax bill that Pawlenty vetoed in May, which contained $1 billion in tax hikes and a $1.7 billion schools cost shift, had been enacted, the projected deficit for ‘12-’13 would stand at $4.6 billion, or about 2.2 times this year’s net deficit. (That’s because a legislatively enacted shift would not have to be paid back in full in 2012, while Pawlenty’s "mimic" of a shift apparently will have to be.)
• If the Legislature’s highest tax increase proposal–the $2.6 billion in tax increases and tax expenditures in the Senate omnibus tax bill–had been enacted, the projected ‘12-’13 deficit would be $4.7 billion, or again, about 2.2 times this year’s net deficit. (The Senate’s tax bill didn’t include any shift provisions.)

On the other hand, the projected ‘12-’13 deficit under these scenarios would be only 63-64 percent as large as the $7.3 billion the state currently faces as a result of no-new-taxes brinksmanship.

An incurable optimist might say the good news is that Minnesota’s budgeting session in 2011 is unlikely to bring the same gridlock-inducing arguments over huge tax hikes versus huge spending cuts.

The pessimists would be left to point out that this is because it will take huge tax hikes and huge spending cuts.

No Responses to “By the numbers: Minus one-time money, Minnesota’s next budget deficit will be three to four times worse”

1. Anonymous Says:
   June 23rd, 2009 at 2:12 pm

   TPaw was to convert the state of MN to be Republican. However, he believes that when it must be a “Red State” and he can not get it to be Republican, force it to be a red state by ruining the state economy and put it so far in the RED that it will take 5-12 years to correct the economy. Maybe he believes that he can claim that he has made the state of MN a “Red State” when running on the national level as no one will check that it swung back to the DFL because of his BAD policies.

2. Anonymous Says:
   June 24th, 2009 at 10:41 am

   C’mon, revenues are project to increase from $31 billion to $34 billion for the 2012-13 biennium. The state cannot maintain a 24% increase in spending biennium to biennium that the $7.3 billion deficit amounts to.

3. Anonymous Says:
   June 24th, 2009 at 7:22 pm

   Do you think this might also be a good opportunity for Governor Pawlenty to unallot the “billions and billions in wasted state spending” that he has claimed since his days as majority leader in the legislature?

   As governor, Pawlenty is now in a leadership position, as such this is his opportunity to put some action to all that political rhetoric that he has been claiming over the years.

   Or is it a fact that all those “billions and billions in wasted state spending” is not as easily found as he has claimed with his rhetoric over the years.