State Budget Forecast Expected Thursday

December 3, 2019

A new state budget forecast is expected to be released on December 5. Governor Tim Walz plans to hold an 11 am press conference to announce the year-end forecast.

As a refresher, the state budget forecast is what legislators use to set their spending targets and priorities for any budget negotiations during the upcoming legislative session. While there likely will be a small budget surplus, the current excess revenues may come from early tax payments as opposed to actual economic expansion, according to Minnesota Management and Budget.

Even-numbered years at the legislature are typically focused on bonding or policy bills, as the state budget is already in place from the 2019 legislative session. While small supplemental spending bills are often passed during even year sessions, don’t expect monumental spending to happen outside the bonding bill. With split party control in St. Paul and the election of 201 legislators less than a year away, it is unlikely that Governor Walz will make broad budget issues into the core of his session agenda.

If there’s a surplus

While the projected budget surplus shrank after the 2019 legislative session, the fact remains that Minnesota’s budget is thought to be stable. A surplus would be mean that the state has funds to do things like put more into budget reserves and fund specific issues. Some priorities include early childhood education, insulin, health coverage and the opioid epidemic.

Additionally, evaluation of bonding projects will take place regardless of the size of the surplus. There is plenty of room left under the bonding cap, even without a surplus, for the debt payments. With a large surplus, the real debate may be tax cuts vs. spending, which will place the Senate and House at odds.

A budget surplus puts NAIOP in a positive position, especially regarding the commercial/industrial statewide property tax. With a budget surplus, legislators likely won’t be looking for “easy” ways to increase revenues to balance out a deficit.

If there’s a deficit

While it’s less likely that a deficit is announced on Thursday, the possibility cannot be ruled out entirely as deficits in the out years are always something to keep an eye on. If the state is projected to be running a deficit, Governor Walz and lawmakers will likely start planning for supplemental budget bills that could help sustain the balanced budget they passed last legislative session. This could mean making budget cuts to funding for specific programs or increasing revenues. 2017 was the last year Minnesota faced a projected budget deficit.

If new revenues are desired, an increase to the C/I statewide property tax and/or a reinstatement of the automatic inflator would likely be on the table. The NAIOP team will work hard to ensure that our industry’s voice is well-heard in any hearings related to increasing property taxes on CRE.

The budget forecast will be updated again in late February or early March.