State Revenue Collections Remain Strong but Clouds on the Horizon

October 18, 2021

The state’s short-term positive budget news is reassuring for city budget planners.

Despite the economic tumult of the past 20 months since the pandemic began, the state’s economy has rebounded, and general fund tax collections have continued to exceed forecast. This is reassuring news as cities finalize their 2022 budgets, which include state shared revenues.

Minnesota Management and Budget’s (MMB) quarterly Revenue and Economic Update, released last week, contains information on revenue collections — including income taxes, sales taxes, and corporate income taxes — and updated economic growth projections prepared by the state’s economic consultant.

The report does not include updated information on state expenditures, which could increase or decrease the actual state general fund budget status. Expenditure information will be included in the next full state budget forecast.

Access the full Revenue and Economic Update

FY 2022 starts strong

Minnesota’s net general fund receipts for the first quarter of fiscal year (FY) 2022 (July, August, and September) are now estimated to total $5.974 billion, which is $657 million (12.4%) more than forecast in the last Budget and Economic Forecast released in February.

Net receipts for all major tax types exceeded the budget forecasted levels. Net individual income tax receipts were $155 million (5.1%) more than forecast. Net sales tax receipts were $132 million (9.7%) above the forecast. Net corporate tax receipts were $361 million (90.5%) above the forecast.

Local government aid (LGA) payments, distributed to cities in July and December this year, are funded in the state’s FY 2022 budget.

FY 2021 ended strong

Net general fund revenues for FY 2021, which ended June 30, 2021, are now $2.67 billion (11.2%) more than forecast in February. Combined with the positive revenue collections for the first three months of FY 2022, the state’s revenue collections are more than $3.3 billion above forecast.

Economic outlook has weakened

Although state revenue collections have remained strong, the report cautions that the economy may not grow as quickly as previously projected. The outlook for economic growth has been revised down four months in a row and has weakened since the last state Budget and Economic Forecast was prepared in February 2021.

The downward revisions are the result of two major factors:

  1. The rapid spread of the Delta strain of the coronavirus has slowed third-quarter growth in consumer spending on services and is expected to continue to inhibit growth through the end of 2021.
  2. Supply-chain disruptions are expected to continue to negatively impact business production and inventory investment.

Over the longer term, the impacts of the 2020-2021 federal fiscal stimulus, including the funding cities received through the American Rescue Plan Act, are expected to wane beginning in 2026.

Next forecast coming in December

MMB will release the next complete Budget and Economic Forecast around the first week of December. That report will update both expenditure and revenue experience since the biennium began on July 1, 2020. It will also provide projections for the balance of the current biennium and for the upcoming 2023-2024 biennium, which begins on July 1, 2022.

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