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Minnesota budget forecast shows slight dip

The Minnesota state Capitrol building as seen in July 2017, after completion of a $310 million, multi-year renovation. The original construction was completed in 1905. Don Davis / Forum News Service

ST. PAUL — The economy remains strong, but a new report indicates Minnesotans should not be overly confident.

The Tuesday, Dec. 5, budget forecast, which state leaders release twice a year, showed a $188 million deficit out of a $46 billion, two-year budget. The forecast was based on economic predictions that contained a lot of uncertainties.

State leaders were happy with what the 73-page report said about the economy.

"We are absolutely doing the right things in Minnesota," state House Majority Leader Joyce Peppin, R-Rogers, said. "All of the numbers look great."

State Economist Laura Kalambokidis said that last February the private firm that helps the state make budget predictions had figured an economic stimulus would come from a federal tax bill. Now, however, the firm is not incorporating how much the tax bill now being discussed would affect the economy. The tax bill now is "a source of uncertainty," she said.

Taxpayers are watching Washington, Kalambokidis said, but economists cannot predict if they will spend more or opt to stash away money.

Kalambokidis led the way in saying the state economy is strong, even if it is not as strong as expected last February.

"Statewide, there about as many job vacancies as there are job seekers," Kalambokidis said.

Many businesses cannot expand, she added, because they cannot find enough workers.

Gov. Mark Dayton said the solution to that, at least in part, is to bring more people into the state.

"Attract more people that would have the skill set that businesses would be looking for," Dayton said, without giving specifics about how that can be done.

The Twin Cities and many greater Minnesota economic centers are short workers, the governor said.

"It is a dearth of people," Dayton said. "Business need more people to expand."

He said that state colleges and universities could do a better job of graduating students for available jobs.

Kalambokidis said the forecast predicts continually increasing wages, but not as fast as expected.

One of the economic bright spots has been the Iron Range, Kalambokidis said, adding that mines have sold "an extraordinary amount" of iron ore.

Much of that has gone to other countries, she said. In fact, exports have been strong, which helps the state's manufacturers.

Exports are on the minds of many in the agriculture community as the Trump administration negotiates the North American Free Trade Agreement, which opened doors to increased sale of farm products to Canada and Mexico. Farmers warn that if NAFTA is canceled, they will take a serious economic hit.

The economic report assumes no change in NAFTA, Kalambokidis said. However, she added, "trade policy is one of the risks to this report."

The country's economy is well into the ninth year of an expansion, Tuesday's report said. That is longer than most expansions and leaves economists on edge, fearing a downturn.

Besides the taconite iron ore increase last year, the report says "solid gains" came in the health care, leisure and hospitality industries. Moderate growth was reported in manufacturing, professional and businesses services and government.

"Minnesota’s employment gains continue to be broad based," the report says. "Minnesota’s annual job growth

currently exceeds the U.S. rate in nine of the 11 major sectors."

State leaders agreed the economy is strong, and also agreed that because of so  many uncertainties Tuesday's report did a poor job of giving them background for budget decisions they may need to make next year.

Senate Majority Leader Paul Gazelka, R-Nisswa, called the report "obsolete on arrival."

House Speaker Kurt Daudt, R-Crown, said that he has received assurances from Congress that it will approve spending $178 million on the state Children's Health Insurance Program, which would reduce the deficit to $10 million. If a federal tax bill passes, he said, it could provide enough more revenue to erase the deficit.

"Today's forecast is a reality check," Commissioner Myron Frans of Minnesota Management and Budget said.

It was the first deficit, although a small one, after more than four years of budget surpluses.

Another budget forecast is planned for shortly after legislators arrive for their 2018 session, so Dayton says he will not release any budget requests until then. That forecast is expected to come at a time when federal government changes are better known.

Don Davis
Don Davis has been the Forum Communications Minnesota Capitol Bureau chief since 2001, covering state government and politics for two dozen newspapers in the state. Don also blogs at Capital Chatter on Areavoices.