The news that the budget deficit has dropped about $200 million starts a new process in the Capitol, giving both the executive and legislative branches some room for maneuver. I don't know that it will be enough. Don't expect much until they get through the unallotment appeal.

OK, that's all the politics I'll do. Here's two more detailed parts of it if you want to get your hands dirty.

There's the ongoing GAMC fight, and the full forecast tries to add some instruction on this issue. If you read the full report, much of the benefit to the budget was foreseeable from a federal program that eases Minnesota's cost of Medicare and Medicaid. You will not get that money next time around, so it will make the 2012-13 deficit look a bit worse. As we knew would be true, unallotment doesn't help you at all with the out-year estimates.

The $2.5 billion in spending reductions made through unallotment do not
become permanent reductions that continue in FY 2012-13. The planning estimates include complete repayment of K-12 school aids deferred in FY 2010-11 ($1.163 billion) and no repayment of the K-12 property tax recognition shift ($564 million). The projections do not include reinstatement of funding for the General Assistance Medical Care (GAMC) program that was line-item vetoed in FY 2011. If continuation of the program at current levels were assumed, an additional $928 million would be required in the 2012-13 biennium.

MMB's report says the entire amount of MinnCare needed to take care of those moved from GAMC is reflected in the budget at p. 53-54. Wonkier types should read that page very carefully. I am not positive this is right, but it makes some statements, like that of Rep. Larry Haws, look like it's working with incomplete information :

The Legislative GAMC solution is more cost-effective and efficient than the Governor�s auto-enrollment plan that will drain the Health Care Access Fund to the point of bankruptcy and exacerbate the state�s budget deficit. Minnesotans can�t afford the Governor�s plan or his veto pen. The clock is ticking and the poorest of the poor and sickest of the sick need us to breathe parliamentary live back into the GAMC solution. I will encourage House leadership to bring people back to the table.

Here's the problem, based on discussion with sources and on documents we can see. One reason this was vetoed was that the Legislature's solution, according to Gov. Pawlenty's veto letter, used $170 million of money that he had already designated to close off the deficit in the current biennium. It also cuts provider reimbursements (at least until the hospital lobby gets around to pressuring for that money in later legislation.) Then there's this $928 million in the budget document. I'm still working on other leads to see if someone can get this explained to me better, but that appears to be an extra billion in deficits over the next three years plus change. The transition to MinnCare appears to add $766 million between current and next biennium, so that's a savings. It looks like two gross figures to me, and the MinnCare one looks smaller. I'm open to being persuaded differently about that, but I think I'm right.

Revenues are a little down from November forecast because, while GDP growth has been adjusted up to 3% from 2.2% for 2010, they've cut just a bit the wage projection. Take a look at this passage from page 38:

Global Insight expects growth in U.S. wages and payroll employment in 2010 to be stronger than they factored into their November baseline forecast, while MMB�s outlook for Minnesota employment and wage growth in 2010 has weakened modestly.

Lower wages drive a lower income tax forecast which makes the deficit larger. Tom Stinson is up here tomorrow for Winter Institute, and I intend to ask him about this sentence to get it clarified. Why would Minnesota's wage growth lag the nation's? I have some ideas why it might be true, but it's not my sentence and I'm not sure I would write something that strong. And they wrote this before data revisions from BLS and DEED came out yesterday. They note that the revisions might change their view. If the answer is at all interesting, I'll tell you Friday.

Labels: economics, Minnesota