Twice each year we prepare the Budget and Economic Forecast as required by Minnesota law. The November forecast is used to set the starting point for the budget, and is the basis for the Governor’s recommendations. The February forecast incorporates additional data and is used by the Legislature and the Governor to set the enacted budget or to ensure that enacted budgets remain on track and in balance. Forecast information is also used by bond rating agencies and other financial analysts to review the state's financial health, and by the media who present information on the state's financial condition to the public.
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February 27, 2015
Read Forecast At A Glance
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Higher Revenues, Lower Spending Increase FY 2016-17 Balance to $1.869 Billion. FY 2016-17 revenues are now forecast to be $42.497 billion, a $616 million (1.5 percent) increase over November estimates. Current law spending is forecast to be $41.128 billion, $115 million (0.3 percent) below previous projections. Changes to revenue and spending in the current biennium add $107 million to the FY 2016-17 beginning balance. As a result, the projected forecast balance in the next biennium is now $1.869 billion, an increase of $832 million over the November forecast.
U.S. Economic Outlook Improves. The overall outlook for U.S. economic growth has improved since November. IHS Economics expects the largest change to occur early in the forecast period, with projected real GDP growth for 2015 increasing to 3.0 percent from 2.6 percent in November’s outlook. The February baseline now calls for real GDP growth of 2.7 percent in 2016 and 2.8 percent in 2017. The November baseline called for slightly higher growth of 2.8 percent in 2016 and 3.0 percent in 2017.
Lower Oil Prices and Rising Dollar Affect Economic Growth. Sharply lower oil prices and a stronger dollar are re-shaping the U.S. and Minnesota economic outlooks. Cheaper oil reduces capital expenditures in oil-related industries and allows consumers to divert spending toward non-gasoline purchases. The strong dollar reduces demand for U.S. and Minnesota exports and makes imported goods more affordable. Both factors place temporary downward pressure on inflation in the near-term.
Higher Expected Individual Income and General Sales Taxes Add to FY 2016-17 Revenue Forecast. FY 2016-17 tax revenues are now forecast to be $520 million (1.3 percent) more than the prior estimate. Higher forecast individual income tax receipts, driven by higher expected income growth, contribute $393 million of this change. Improved expectations for taxable sales raise the general sales tax forecast $124 million over the prior estimate. Lower expected growth in corporate profits brings down the corporate tax revenue forecast.
Long Term Budget Outlook Remains Strong. The improved budget outlook continues into the planning horizon as revenue growth exceeds spending growth. There is a structural balance of $3.184 billion for FY 2018-19. Expenditure and revenue projections for the planning years will be affected by any economic changes and an enacted budget for the 2016-17 biennium.
February 27, 2015