State Starting to Feel Economic Downturn.  The House Ways and Means Committee heard from the Commissioner of Minnesota Management and Budget Myron Frans and State Economist Dr. Laura Kalambokidis gave an update of Minnesota's fiscal situation as the state begins to experience the economic ripple effects resulting from society-wide adjustments to the COVID-19 virus.  Economic activity in Minnesota began to slow as businesses shut down and the shelter-in-place orders were issued by Executive Order.  Revenue collection from three of Minnesota's primary taxes--individual income, corporate income, and sales--were all down.  The corporate franchise tax was up and the net effect of these dynamics is a drop in $103 million off the state's bottom line.  As outlined in the Minnesota Management and Budget Revenue and Economic Update document released last Friday and linked below,  IHS Markit--the firm that provides macroeconomic projections for Minnesota's budget forecasts--predicts a 5.4% decrease in national gross domestic product for 2020 and with Minnesota's economic performance tied very closely to national measures, we can expect the $1.5 billion forecasted budget surplus (much of which has been spent on COVID-19 related interventions and supports) to dwindle dramatically with a deficit looming as the Legislature convenes in 2021.  IHS Markit projects that the national gross domestic product will increase by more than 6% in 2021, but that will not make up for the revenue lost during the downturn.  This all bears watching and the IHS Markit projection is based on a relatively optimistic "V" recovery (rapid slide followed by rapid recovery, hence the V-shape) to which they assign a 45% level of probability.  IHS-Markit assigns a 35% probability to a more pessimistic recovery that would stretch into 2021.  It is difficult to tell how consumers will react even when the shelter-at-home restrictions are lifted, which makes projecting revenue numbers extremely difficult.  In another item, the federal stimulus package (considered modest in IHS-Markit's view) is factored into their economic performance numbers.

While the committee absorbed the troubling economic news, a larger portion of the committee process was dedicated to trying to map where the Legislature and the Governor can, and perhaps will, go from this point forward.  We are closing in on the end of the regular session and there is concern about how a precipitous downturn in revenue collection will be addressed during the interim.  The Governor could call a special session, but he also has the ability to reduce state expenditures in a variety of spending areas and that power has been used in previous times of economic trouble.  While the budget reserve sits at $2.4 billion, keeping that in place until the absolute last minute will be crucial and one legislator urged the administration to use unallotment powers before exhausting the budget reserve.

There will be difficult discussions over the coming months and today offered what will be the first taste of what lies ahead.

Link:  Minnesota Management and Budget Revenue and Economic Update

Breakthrough on Insulin Availability Bill.  In a positive sign that the Legislature is making progress on key issues that were high priorities entering the 2020 legislative session, the conference committee on the insulin availability bill came to agreement yesterday and it is expected that the entire Legislature will vote on the measure when it convenes again next Tuesday.  There were several bills the Legislature deemed necessary to pass this year and the insulin availability bill ranked high on that list, in the eyes of many second only to the bonding bill.  The reaction to COVID-19 has dramatically changed how the Legislature is conducting business and the fact that agreement was reached under these circumstances is clearly a positive sign that necessary items can--and likely will--be addressed as the Legislature continues its work.  

The Legislature must adjourn on Monday, May 19, and it will likely want to pass a bonding bill before it adjourns.  In addition, it will want to put its stamp on policies that have been covered by Governor Walz' Executive Orders.  Both the House and Senate have been working on sets of proposals dealing with education.  As I reported on Tuesday, the House held a remote hearing on its proposal that day and the Senate has also been working on a parallel set of initiatives.  The Senate has been dealing with all COVID-19-related discussions in a working group setting where individual committee chairs are brought into that process to cover issues related to their committees' jurisdiction.  The task force has yet to cover E-12 education issues, but I anticipate that will happen shortly.

Here is a link to the story on the agreement on insulin availability:  House, Senate expected to vote next week on insulin agreement

House Education Funding Division Back in Action.  The House Education Funding Division held its first Zoom meeting today to discuss a funding bill that is taking shape in the House.  While Governor Walz has issued Executive Orders that are governing the funding and delivery of pre-K through 12 grade education, some questions remain and the House bill discussed today--HF 4415 (DE10 Amendment)--aims to answer a number of those questions and address some crucial funding issues.  The bill's chief author, Representative Jim Davnie, outlined these items as the primary goals of the bill:

• Hold districts financially harmless to the extent possible.
• Code employees in the category in which they were originally hired.
• Allow greater flexibility for districts to transfer within district funds.
• Codify the provisions allowing the waiving of achievement testing that were enacted as part of the recent Federal stimulus package.
• Allow high school seniors to graduate on time.
• Adjust deadlines for licensure renewal.
• Allow student teachers who have nearly completed their practicum to gain full credit for their experience.

One item that is in the bill that differs from items on which there is clear guidance is the House bill would require districts to pay their hourly employees for scheduled hours that have been reduced due to the outbreak of the COVID-19 virus.  The section relating to this issue is found in Section 1, Subdivision 2, on page one and runs on to page two.  Many school districts are following this to the extent possible, but given the likely fiscal challenges that districts will be facing over the next few years, the desire to save dollars where one can is present.  Guidance from the Minnesota Department of Education allows for laying off hourly employees whose employment is not attached to a specific funding stream and the House would like to stem that.  A number of hourly employees and paraprofessionals testified in favor of the House legislation.  MASE Executive Director Gary Amoroso testified on behalf of the management end of the school equation (SEE is included in that set of groups).  It's a very difficult issue.  Everyone understands the value of the hourly employees and they have clearly stepped up as schools have had to convert to distance learning and would like to be in a position to see them made whole, but the looming financial challenges that school districts will be facing may make that difficult.  Hence, the tension.

Representative Ron Kresha asked the question that everyone must ponder as we work through the crisis is (and I paraphrase) "What decisions will need to be made when we are staring at a considerable budget deficit next biennium?"  Minnesota's state budget forecast--like budget forecast everywhere--have gone straight South since the pandemic and the short- and medium-term economic outlooks are troubling.  All indications are that there will be a considerable budget deficit when the Legislature convenes in 2021 and if we turn back the clock a decade, we can all remember the difficulties (with a state shutdown mixed in) in trying to put together state budgets during that stretch.  Stay tuned.  The immediate task is to protect revenues for the remainder of this biennium before we even think about that rocky road.