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Budget Outlook: State fairly well-prepared for economic downturn

It’s been more than 10 years since the most recent recession hit, but state policymakers should know — and do — that the economic cycle has not been repealed. There will be another recession, and probably sooner than later. Indeed, the current expansion is the longest on record.

A recent report by Pew Charitable Trusts on state preparedness for the inevitable downturn ranks Minnesota near the top in its ability to minimize the pain when it comes.

Among the highlights: The state’s budget reserves are better than average. It has lower than average debt and pension obligations. And it has restored many of the cuts made to balance the budget during the Great Recession, which gives policymakers more options to deal with a potential shortfall.

Pew also praises the state’s “stress testing,” a process in which the state budget office examines how different scenarios would reduce tax revenues. Not every state does that.

Minnesota has a more diverse economy than many states and little exposure to the volatility of oil and gas production. So we have less of a boom-or-bust economy than, for example, North Dakota. That doesn’t mean the next recession will bypass the Gopher State completely, but it should lessen its impact.

Minnesota’s position for a downturn may be better than most, but it is not perfect.

One point Pew makes is that Gov. Tim Walz’s administration should pick up on is expanding the stress tests to expenditures. While the state may have a good handle on how a downturn would affect revenues, it may not know as well how much it would affec­t expenditures.

And the Department of Management and Budget’s most recent outlook recommends expanding the budget reserve to $2.3 billion during this biennial budget period, which began July 1. The reserve at the end of June was $2.1 billion. The 2019 Legislature reduced the reserve fund. That is a decision that merits rethinking in 2020.

— The Free Press of Mankato

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