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Minnesota economy better, but not great, and government aid is tied up in politics

While the Minnesota state economy is faring better than economists envisioned earlier this year due to the ongoing pandemic, it could be jump-started by government aid that is embroiled in political battle.

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Snow fell on the Minnesota State Capitol building on Thursday, Nov. 12, 2020. Dana Ferguson / Forum News Service

ST. PAUL โ€” While state financiers are forecasting a sunnier state budget this year than they previously expected, federal and state aid packages that could jump-start the economy amid the ongoing pandemic remain in political limbo.

Pressure is mounting for Minnesota lawmakers to pass a relief bill for businesses ravaged by the pandemic-driven recession as the state hunkers down. Both sides of the divided Legislature โ€” as well as the governor's office โ€” have signaled hunger to pass a package soon, but a deal has not been struck yet.

Following up on their updated budget projections released last week, the Minnesota Management and Budget office (MMB) on Monday, Dec. 7, told state legislators in two committee hearings that the state budget is seeing an encouraging swing this biennium. What was once a dreaded $2.4 billion shortfall predicted in May swung to a $641 million surplus this month.

The dramatic swing was triggered by two major factors: The state saw lower-than-expected state expenditures with student enrollment and public school costs having dropped since the coronavirus pandemic, and state sales tax revenues were surprisingly high thanks to changes in consumer spending habits.

But still, the COVID-19 pandemic has taken its economic toll, in addition to thousands of lives. State budgeters still project that next biennium will see a $1.3 billion shortfall thanks to a decimated pandemic economy โ€” far lower than what budgeters predicted in May ($4.7 billion), but still a deficit. MMB officials on Monday noted that their deficit projection does not take into account whether the state decides to tap into its budget reserves.

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Lower-wage workers have borne the brunt of COVID-19's economic impact, and according to the state Department of Employment and Economic Development, more than 1.1 million Minnesotans have applied for unemployment benefits since March 16.

Minnesota has nearly run through the entirety of its CARES Act aid to pay for coronavirus-related costs and programs. With an upcoming deficit and the nation's only divided Legislature, the question over what programs could continue without more federal money is up in the air.

With negotiations on a second round of federal aid gone stale in Congress, MMB Commissioner Jim Schowalter told lawmakers Monday that the office's current projections do not take into account any additional stimulus or aid to Minnesotans. If more aid is passed, it could jump-start the economy, he said.

Similarly, if more aid is not given and state programs run out of funding โ€” such as robust testing โ€” Schowalter said the recession could be prolonged.

With Gov. Tim Walz tightening restrictions on nonessential business and gatherings in the state as virus cases continue to surge, lawmakers' and industry leaders' calls for economic aid have reached a fever pitch . At the House Ways and Means Committee's Monday virtual hearing, Chair Lyndon Carlson, D-Crystal, set a subsequent hearing for Thursday to discuss a potential relief bill โ€” but Carlson said no deal has been reached as of Monday, and it may not come together in time for Thursday.

Mearhoff is a Minnesota Capitol Correspondent for Forum News Service. You can reach her at smearhoff@forumcomm.com or 651-290-0707.
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