For the last several months I was fearfully thinking ahead to a day sometime in January when the Legislative Fiscal Bureau would issue its annual report on state revenue projections and the state’s economic and fiscal outlook. My trepidation about the report was fueled by the monthly tax collection figures from the Department of Revenue – which have been lagging well behind the FY 2009 numbers – and by very large budget holes that have been reported in other states. Against that backdrop of worrying, the bad news in the LFB’s annual update finally issued yesterday was actually a relief, though it’s no cause for celebration.
The Fiscal Bureau reported that the state’s closing balance (at the end of the 2009-11 biennium) will be $219.5 million less than previously anticipated. Because of a veto the Governor made, which had the effect of restoring a requirement for agencies to find an additional $200 million to lapse to the General Fund, the estimated balance was previously expected to be about $275 million. That has now dropped to $55.7 million, which still leaves the state in the black – although that amount is about $9 million short of the minimum statutory balance ($65 million) that the state is supposed to have at the end of each fiscal year. Nevertheless, these fiscal developments do not trigger the requirement for the Governor to propose a budget repair plan, which is far better news than what I was expecting.
That said – the new figures do not account for a projected $120 million – $150 million deficit in the Medicaid/BadgerCare Plus (BC+) budget and an estimated shortfall of almost $10 million in the Public Defender budget. Although Medicaid and BadgerCare Plus are both entitlement programs (except for the BC+ Core Plan), I’m not surprised that the LFB pushed that issue to the side – at least for now – because the budget bill directs DHS to find cuts to keep MA and BC+ spending in balance. Also, the state might get a significant boost in that area from an extension of the temporary increase in the federal matching rate for Medicaid (approved by the House, but not by the Senate).
The $219 million drop in the projected closing balance is the net result of numerous adjustments in the LFB’s revenue and spending estimates. The primary factor is a $295 million reduction in estimated tax revenue. That can be attributed mostly to:
• $160 million less sales tax revenue over the next two years (relative to the previous estimate),
• $85 million less from cigarette taxes, and
• $25 million less from corporate income taxes.
On the positive side, the individual income tax estimate has only dropped by about $3 million over the next two years. In fact, the individual income tax projections would have actually increased by about $88 million if Minnesota hadn’t unilaterally decided to drop its tax reciprocity agreement with Wisconsin – causing a short-term loss of $91 million for our state. (Keep that unfriendly change in mind if you need any additional motivation to take pleasure in the Viking’s loss last weekend.)
On balance, the state looks almost $220 million poorer today, relative to the estimates last July, but the continued slump in employment and the downturn in revenue hasn’t pushed the budget into the red. The Doyle Administration has some very painful decisions to make – needing to unveil $200 million more in lapses, and perhaps also another round of cuts in Medicaid reimbursement – but the state doesn’t face a divisive battle over another budget repair bill.
