State Budget Update Shows Huge Deficit Due to COVID-19 Impact

Posted on May 5, 2020 by Jeff Bostic

The State of Minnesota yesterday released an unusual budget update to measure the impact of the COVID-19 pandemic on the state budget. As anticipated, the economic slowdown tied to the COVID-19 response is projected to have an enormous impact with the state now anticipating a deficit of $2.4 billion for the biennium.  

In the previous budget forecast released in late February, the state was projected to have a surplus of over $1 billion for the current biennium that ends June 30, 2021. 

The dramatic change in the state’s financial situation is primarily due to lost tax revenue from the economic slowdown tied to the pandemic. The state’s projected revenue from income and sales taxes went down by more than $3 billion in the update. Changes on the expense side since February were more modest, with a total increase of $550 million, due to previously appropriated COVID-19 relief funds as well as projected enrollment increases for state assistance programs. 

The update only addresses the current biennium due to the uncertainty around the direction of the pandemic and its impact on the economy going forward.

The state does have a budget reserve of almost $2.4 billion that can now be accessed to cover the projected deficit. The state has also received over $2 billion in federal funds to address COVID-19 related costs, and there is a federal effort to provide more relief to states to address budget impacts like what Minnesota is seeing. With that being said, we are in the last few weeks of the legislative session and the Legislature is not in a position to be able to provide significant additional relief to providers to respond to the COVID-19 pandemic.