MPR: 'New' economy ushers in new tone at Capitol

'New' economy ushers in new tone at Capitol
By Michael Khoo
Minnesota Public Radio
October 4, 2001

State lawmakers say the weakening economy, rattled by the September 11th terrorist attacks, will set a new tone when the state Legislature reconvenes early next year. After almost a decade of substantial surpluses, state officials now say revenues are likely to fall short of projections, forcing the state to dip into its reserves - and perhaps beyond.

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The long boom of the 1990s, when incomes and stock portfolios moved ever upward, and the New Economy promised rising productivity and wealth, seems a distant memory. By summer's end, the state and national economies were already limping to a near standstill, with almost daily reports of layoffs, corporate losses, and slumping financial markets. The fear now is the shock to consumer and business confidence from the terror attacks may tip the economy into full recession. What does the future hold for the state's economy? Find out in the online project, Economy on the Edge.

Well before anyone could have imagined the attacks on the World Trade Center and the Pentagon, state officials were already warning of a weakening economy and urging lawmakers to exercise caution while drafting their two-year budget. In the aftermath of September 11th, state economist Tom Stinson says there's more uncertainty than ever.

"Nobody knows what's going on in the economy. Part of the reason why economists have so much difficulty at this point is because this depends a lot on consumer psychology. And we're not trained in psychology; we're trained in economics," Stinson says.

Stinson told a meeting of the Legislative Commission on Planning and Fiscal Policy that collections for the state's four largest revenue sources were already down $45 million in the first two months of the new biennium - before the East Coast attacks. Those sources included the personal and corporate incomes taxes, the sales tax, and the motor vehicle excise tax.

Stinson wouldn't venture a guess as to how the new war on terrorism might further affect the state, but House Finance Chair Rep Dave Bishop, R-Rochester, offers a glum assessment. "I think it's pretty clear that we're going to have a lot less money than we anticipated, and we're looking probably in the 'big B' - the billions, of reduction," Bishop said.

Bishop notes, however, that the state has more than $1 billion in reserve accounts that could cushion any financial strain. But he nonetheless says a worst-case scenario could force major adjustments.

Senate Majority Leader Roger Moe, D-Erskine, echoes that sentiment. Moe says Minnesotans may now regret having used this year's budget surplus for sales tax rebates.

"Keep in mind this administration inherited billions of dollars in surplus, and now we're already talking about going into the budget reserve and possibly eliminating that. So things have changed," said Moe.

But Moe says federal efforts to assist the airline industry and President Bush's announcement Wednesday of an economic stimulus package of up to $75 billion could help prop up the economy.

Finance Commissioner Pam Wheelock says the good news amid the dour predictions is that Minnesota's budget reserves put the state ahead of the pack in its ability to weather an economic crisis. "One of the unsung stories about Minnesota is that we are much better prepared than most every other state for a downturn in the economy. So Minnesota has taken advantage of the good years to help prepare itself for the lean years, and I think that's something that can and should be recognized," Wheelock said.

Wheelock notes bond rating agencies reaffirmed the state's AAA rating during meetings this week in New York. She says Minnesota is only one of 10 states to earn the highest rating.

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