Minnesota projects $2.4B budget deficit as COVID-19 pandemic hammers state's economy

Gov. Tim Walz left the door open to state worker layoffs Tuesday after Minnesota budget officials said the coronavirus pandemic would cause a $2.4 billion budget deficit.

The state's fortunes have suddenly swung by nearly $4 billion, wiping out a comfortable $1.5 billion surplus that state officials projected in late March and replacing it with red ink.

Tax collections are plummeting because thousands of businesses are closed with stay-home orders in effect. Nearly 600,000 Minnesotans have filed for unemployment since mid-March. Consumers are jittery about spending money amid the economic uncertainty.

"The shock to the U.S. economy from the pandemic is unprecedented in modern, post-war history, and the economic outlook is exceptionally uncertain and volatile," state economists said Tuesday.

Minnesota economic officials expect a deep plunge this summer and a recovery in 2021 -- but not a return to pre-pandemic economic levels through at least 2023.

Asked if he'd consider laying off state workers, Walz said he'll "put every scenario on the table” but that staff salaries represent a small percentage of the overall state budget.

"If you laid off every single worker we had -- which means there’s nobody at the health department, nobody at the schools, nobody plowing the roads -- you’d save about 7 percent," Walz told reporters at a news conference.

Republicans said Walz should start by ripping up planned pay raises for state workers.

The deals were struck last year, but they don't take effect unless lawmakers agree to them by July 1.

"We need to be able to look into the eyes of the small business owner and the laid-off worker and tell them state government is making sacrifices too," Senate Majority Leader Paul Gazelka said in an emailed statement. "Empathy is not enough."

Walz can use the state's $2.3 billion rainy day fund to cushion the pandemic's blow, but budget officials are urging him not to use it at once because the recession could deepen if unemployment, business closings and lack of consumer confidence linger.

"I’m going to anticipate that this could deepen in terms of the deficit and approach it that way," Walz said. "It's not just, 'Dump the budget reserves in and you're even today,' because tomorrow if we go back in, it's not there." 

The state has spent $550 million to respond to the coronavirus, though budget officials expect nearly all of that to be reimbursed by the federal government under the stimulus law approved in March.

Walz likely to re-up his emergency powers

Walz said he's likely to extend his peacetime emergency powers for another 30 days before they expire on May 13.

The emergency powers have given him the authority to impose more than 50 executive orders, including the stay-home order through May 18.

The Legislature can end the peacetime emergency any time, but the divided House and Senate are unlikely to agree on that.

'Red alarms' not going off about ICU increase

Critical care cases rose Tuesday to 182 patients, the highest level to date after four straight days of double-digit increases.

But "red alarms" aren't going off yet because the doubling rate of new cases is once every eight days, Health Commissioner Jan Malcolm said. A far more serious doubling rate would be every two or three days, she said.

"I know this is concerning to say, but this is not the steepest part of the curve," she said.