Coronavirus will cause 'temporary and modest' economic impact, Minnesota officials say

Minnesota’s state budget and economic officials are taking note of the coronavirus outbreak in other countries, which has sent U.S. stocks tumbling more than 10 percent this week.

Economists at IHS, the consulting group used by the state, said the outbreak will cause “temporary and modest impacts” on the U.S. economy. Economists said there was new risk “from the potential spillover from a prolonged and widespread coronavirus outbreak.”

The virus poses a risk to Minnesota’s budget, state officials said Thursday, even as they projected that the state budget surplus will reach $1.5 billion over the next 16 months, up modestly from the $1.3 billion projection late last year. 

“The events are changing literally as we speak,” said Myron Frans, the state’s budget commissioner. “I think the key for us as we go forward from here is to be thoughtful about this (virus).”

More than 80,000 people worldwide have been infected with the coronavirus, including 60 people in the U.S. No one in Minnesota has tested positive for the virus, though Gov. Tim Walz has said the state is preparing as if the disease will eventually show up here.

The Dow Jones Industrial Average plunged nearly 1,200 points Thursday, the largest single-day point drop in the index’s history.

Walz said Thursday he is open to using some of the state’s projected surplus to build an emergency account to deal with the coronavirus. But he said it was “wait and see” how much he would seek in a supplemental budget request.

State Sen. Jerry Relph, R-St. Cloud, said he will introduce legislation this week to build a $5 million account.

“It looks like right away, there was a pretty bipartisan move on this. Folks started talking about it immediately,” Walz told reporters. “That’s exactly the type of thing a supplemental budget should be used for.”

Walz’s administration briefed lawmakers from both parties during two sessions Thursday afternoon.

Senate Majority Leader Paul Gazelka told reporters that if the state’s coronavirus requires significant funding, “we will find the money.”

Tax cuts, spending proposals

Even as lawmakers and Walz urge caution about the economic outlook and the state’s projected surplus, they have floated dozens of ways to spend the money.

House and Senate Republicans said their top priority would be a series of tax cuts that would cost several hundred million dollars. Among the proposals: eliminating Minnesota’s tax on Social Security income, reducing the tax rate in the state’s lowest income tax bracket, and allowing Minnesota businesses and farmers to expense new equipment up front.

“The message from us for Democrats and the governor is not whether or not we will have a tax bill, but how big will that tax relief be,” said House Republican Leader Kurt Daudt, R-Crown.

But Democrats said tax cuts would deepen a looming deficit in future years because less money would be coming into the state. And, because the surplus projection doesn’t factor in inflation, Democrats said the pool of available money was much smaller.

“We shouldn’t waste it with reckless tax bills being promoted by the Senate Republicans,” said state Sen. Ann Rest, DFL-New Hope.

House Democrats said they would seek hundreds of millions of dollars for early childhood education.

There are a few areas of bipartisan agreement on spending, however. One of them is a proposal to refill the state’s disaster contingency account before spring flooding. Last year, natural disasters required the state to pull $30 million out of the account to repay local governments for weather-related damage, leaving the fund dry.