Just how bad is Minnesota's budget forecast?

Short answer: bad. Every one is St. Paul seems to agree on that.

Why, and how bad? The gory details are in the Minnesota Management and Budget's latest forecast. It isn't enjoyable reading, but it is largely written in plain English.

Here is my very quick take:

Under current law and a reasonable budget prediction Minnesota plans to spend more than it takes in over each of the next 4 years. That is not allowed, so either we spend less, tax more, or a combination.

The gap is projected at roughly $5B for the FY2012-13 biennium, even after an improving economy is taken into account.

How bad the problem will actually be depends on how the state fixes the gap in 2010-2011. Right now the Governor refuses to consider raising any taxes and the Senate refuses to only cut spending. Sounds like a good time to contact your elected officials and make your mind known...readers of any political inclination ought to be able to find something to dislike.

Result? No budget for 2010-11 for a while yet, so no firm idea of exactly how bad 2012-13 will be.

Here is a longer take:

The forecast predicts tax revenues for FY2010-11 are about $30B, down by $2B from 2008-09, and up to $34B in FY2012-13, up by $2B from 08-09. Sounds great, for FY2012, right? The state will have more money in FY2012-13 than in the biennium just ending.

Sounds great, but it isn't good enough. The state projects that expenses will be up $5B, so the state projects it would spend $3B more than it takes in, which sounds bad.

It is actually worse because the gap for the biennium just ending was $2B, so by 2012 the projected gap between spending and revenue is actually $5B, the sum of the current gap and gap that develops between now and then.

Of course, this is a forecast. The discussion above makes no attempt to judge whether the forecast numbers are reasonable, but I could see the argument that the forecast actually downplays the gap.

The numbers above don't include inflation. With inflation the gap for FY2012-13 jumps by an estimated $1.36B, for a grand total of $6.26B.

Unfortunately, inflation will probably pick up when the wider economy picks up. So there seem to be two likely possibilities:

1. the economy picks up, lifting tax revenues by $2B from the past biennium, but inflation also picks up by $1.36B, just about wiping out the increase in revenue.
2. the economy does not pick up, so there is little or no inflation, but also no increase in tax revenue from current levels.

It does seem hard to see a scenario in which the overall state budget situation is a lot better than expected in FY2012-13.

That does not have to imply that the higher ed budget picture is bad. How the state closes the gap is a political question that will be hashed out by our Legislators and Governor, and in principle higher ed could not be cut at all.

But the only thing less predictable than budgets and river levels is probably politicians.