Bill adding inflation to Minnesota budget forecast expenditures to go to House floor

Minnesota Democrats have long decried a law they say amounts to a budget gimmick that fools the public into thinking government finances are rosier than the reality.

When state government makes projections about future budgets, analysts include how inflation will affect revenue but not spending, thus often undershooting the true cost of government services.

The state’s House Ways and Means Committee on Monday approved a bill that would require Minnesota budget forecasts to include inflation in spending projections. The committee in a voice vote passed the bill largely among party lines, with Democrats in favor.

Each year, Minnesota Management and Budget releases a budget forecast in November and February to give legislators and the governor a baseline with which to create a budget and department allocations.

The state was facing a deficit in 2002 when lawmakers passed a law prohibiting officials from including inflation estimates in the forecast’s expenditure projections. Lawmakers wanted to depict their financial position as better than it was, say this year’s bill proponents, so they eliminated inflation from the forecast’s spending predictions.

Rep. Zack Stephenson, DFL-Coon Rapids, is the chief author of the legislation that adds inflation back into the budget forecast. He said the bill corrects a 20-year-old, misleading error.

“I’m not aware of any business or church that would look at the year going forward as they are going through the budgetary process and just say, ‘We’re going to assume for the next year that everythings gonna cost the exact same,’” Stephenson told the Ways and Means committee Monday. “You really need to account for inflation when you’re making these decisions, and our forecast documents, which give us the information upon which we build our budget, should reflect the very real reality of inflation.”

The idea has become more salient in the past 18 months, with inflation hitting 40 year highs. 

Stephenson said he hopes the bill could reach Gov. Tim Walz’s desk in time for the state’s February budget forecast. Walz in the past said he is in favor of adding inflation back to the budget forecast’s spending predictions.

A fiscal note accompanying the bill estimates that adding inflation to the forecast’s projected spending would reduce the state’s budget surplus by $1.55 billion for the 2024-25 biennium and by $3.3 billion the following biennium.

The bill doesn’t specify how inflation will be measured — whether using the Consumer Price Index or another measure — but states the commissioner of Minnesota Management and Budget must consult with the Senate Government and Finance Committee and the House Ways and Means Committee prior to the forecast’s release.

Legislators for years have debated adding inflation back into the forecast’s projected spending. The Minnesota Center for Fiscal Excellence has criticized efforts to include inflation in the forecast’s expenditures. It notes, correctly, that the budget does include inflation already, but it’s separate and not included in the calculation of projected spending.

Adding inflation to projected spending “has a lot more to do with tilting playing fields and impacting public perception than responsible fiscal management,” the Center said in a recent blog post.

Republican lawmakers in the House Ways and Means Committee said Monday they are concerned with creating a presumption of an increase in spending.

“If you’re somebody who wants to assume that you might put your thumb on the scale to have government spend more money or make more investments … then you should vote in favor,” said Rep. Pat Garofalo, R-Farmington. “That’s not what I believe in.”

Past Minnesota finance commissioners, who served under Democratic, Independent and Republican governors, penned an opinion piece in the Star Tribune three years ago supporting the addition of inflation into the forecast’s expenditure projections.

“It is naive to think that arbitrarily ignoring inflation pressures in the forecast will somehow control state spending,” they wrote. “In fact, such a distorted picture of the upcoming budget period actually impairs the ability of the governor and Legislature to make responsible, long-term financial decisions.”