COVID-19 Daily Briefing: State leaders address budget, future of economy

Tuesday, Minnesota state leaders addressed the future of the economy in the state and Gov. Tim Walz reminded Minnesotans of the "darker days ahead."

Myron Frans, the commissioner of the Minnesota Department of Management and Budget, said Walz asked for an updated projection last month concerning the COVID-19 pandemic impact so he and legislators could use it to make decisions in the last couple of weeks of the legislative session.

Earlier Tuesday, the latest Minnesota budget projection for the current biennium has significantly worsened since the start of the COVID-19 pandemic. At the end of February, the state had a projected surplus of just over $1.5 billion. On Tuesday, that outlook switched to a projected deficit of $2.426 billion, a swing of almost $4 billion.

UPDATE: Latest projection shows Minnesota budget deficit of $2.4B

Walz recalled when he gave his State of the State address and mentioned that "dark days are ahead."

"It’s one of the reasons why Minnesota’s fiscal health was one of the best going into this… and why we’ll be in a strong position to come out of this," said Walz about the state reserve. He added that this will not be a quick one-time fix, as it will require actions in the future to come.

The governor said the data in the budget update will help drive decisions in the coming weeks as the session winds down. The decisions need to be made with thoughtfulness, according to Walz. That deficit comes before any use of the state’s budget reserve, Frans added.

State economist Laura Kalambokidis said the United States’ outlook forecasts a three-quarter recession; a 5.5% decline in consumer spending in 2020. The three-quarter decline of the GDP is shown in the U.S. chart dip below.

The pre-pandemic level is expected to be reached in mid-2021 but that rate of projection in the dotted line isn’t ever expected to be reached, according to Dr. Kalambokidis. Factors that will determine the future impact going forward include business responses, government guidelines, virus vaccine timeline, among others.

The Minnesota total wage income is expected to fall as well, with an annual growth rate projected to drop 5.9% this year and will grow only 0.3% in 2021. It isn’t expected to reach projected levels until 2022.

Kalambokidis said projected revenues are also expected to drop significantly by $3.6 billion due to the pandemic.

It remains unclear when consumers will have the trust to return to pre-pandemic levels of spending. Those budget projection unknowns include the path of the pandemic, consumer and business confidence, business survival, financial market volatility, impact of fiscal and monetary policy, federal support and revenue delays.

State Budget Director Britta Reitan addressed the estimated spending projections. In it, she said it’s expected to increase by $361 million. Out of all categories (E-12 education, property tax aids and credits, health and human services, debt service, and other), health and human services is the only area showing an increase due to services they provide in pandemic times. Reitan said that’s more than offset by federal funding the state is receiving.

Stadium reserve has dropped by $63 million due to a dramatic drop in charitable gambling revenues amid the pandemic versus earlier projections. That, combined with increased spending and decreased revenue, results in a $2.426B shortfall projection.

Walz said he believes it’s smart to take a very conservative approach budget-wise and stay aware that the deficit could get worse. He added that state leaders will work with legislators but cautioned against cutting some things that could help grow the economy again, too.

Frans praised past actions by Minnesota governors, including Mark Dayton and Walz, for building up the budget reserve for a "rainy day."

He also cautioned against relying only on budget reserves to mitigate the projected shortfall this biennium because consumer spending and state revenues are likely to still be down for a while. So far, the federal government has provided about $2.187 billion to the state from the Coronavirus Relief Fund (CARES Act) and over $1 billion for program-specific streams like education initiatives.

The Minnesota COVID fund approved by the legislature has also used about $200 million and another $354 million for additional state appropriations shown above.

Frans reminded legislators they don’t need to solve all of the state’s issues by May 18 (when the session ends) and added some things will need to be addressed later in the biennium.

"I am urging you to not overreact but also not underreact," Frans said.

Regarding confirmed cases in the state, the governor said those are still expected to increase with "some dark days ahead of us." However, Walz added that the trajectory has shifted with the plans put in place.

Also Tuesday, Walz announced he had signed an executive order that will allow elective surgeries with guidelines being followed.

Walz signs executive order allowing elective surgeries to continue

He said state leaders believe doctors and hospitals are ready to handle elective surgeries immediately, as it’s noted to be a part of the well-being of Minnesotans.

"Continue to social distance, wear a mask, don’t go out if you’re sick, only go out for essential services," Walz reiterated on how Minnesotans can continue to help ensure hospitals don’t become overrun or start to deal with any issues such as shortages.

When speaking about elective surgeries, MDH Commissioner Jan Malcolm said the department knows it’s an evolving pandemic that’s taking a while to reach its peak thanks to community mitigation efforts being undertaken. Supplies have been built up so state leaders believe it’s time to give health care facilities more leeway to do more as long as they have a plan to screen patients, protect staff and keep enough personal protective equipment. Health care providers will have leeway on both sides of this, as they can perform the surgeries or they have the option of keeping many restrictions in place if they feel it is needed.

She added that plans do not need to be sent to MDH for approval. They just need to have the plans laid out.

Earlier Tuesday, the Minnesota Department of Health reported 617 new positive COVID-19 cases and 27 new deaths, pushing the state’s totals to 7,851 cases and 455 deaths. Of the total deaths, 368 have occurred in long-term care or assisted living facilities, up by 23 from Monday, according to MDH. Of the total cases, 1,350 have required hospitalization. As of Tuesday, 434 were hospitalized, with 182 in the ICU, marking the second consecutive day the state has set a new high for the number of patients in ICU.

On the patient increase in the ICU, Malcolm said it’s well within what they’ve projected at this point. Walz added that it’s been hard for him to acknowledge that Minnesotans are going to die. It’s tough that rates will continue to go up but state leaders are happy with the progress they have made, he said.

MDH reports 617 new COVID-19 cases, second consecutive day state sees new high in ICU patients

Malcolm said there was a data glitch in reports of the number of tests for Tuesday’s numbers. She expects it was about 3,800 tests completed, instead of a drop as shown on the website.

Hospitals in rural areas where meat plants are located are the areas that health professionals are continuing to focus on. Malcolm said they keep track of hospital capacity on a regional basis and said it’s holding "quite well" right now, but added they don’t know how much more it will grow from its current status.

She says if capacity starts to get strained, there are backup plans in place, such as alternate care sites. Malcolm said they’re working with hospitals to make plans and use space as best as it can be.

Regarding businesses opening early in protest of Walz’s ‘stay at home’ executive order, Walz said he’s empathetic to their frustrations however, they can’t just have people doing whatever they want because that puts everything at risk. He said it can lead to overflowing emergency rooms and can put people at risk.

The governor is asking Minnesotans to do the right things for their neighbors and loved ones, and recognize we have to do this together until there is immunity or a vaccine.

Walz added the key for businesses is to have people trust in the businesses in order to be successful. If a business isn’t listening to the Centers for Disease Prevention and Control, health officials and just doing their own thing, Walz believes karma will catch up on the business side with negative reviews of their business possibly being made.

"The complexity of COVID hits all parts of our lives," said Walz, noting the different areas affected by the pandemic such as the budget, economy, health care and more.

The governor reminded residents that the challenge is finding the balance of getting back toward a normal society while keeping that curve flattened and not risking anyone’s health, and state leaders continue to work at that goal.