At $1.95 billion, Minnesota
boasts the largest reserves in state history
St. Paul, Minn—A report
released today from The Pew Charitable Trusts highlights Minnesota as having
one of the most robust reserve policies in the nation. The report, Why States Save: Using Evidence to Inform
How Large Rainy Day Funds Should Grow, says, “Minnesota follows the most
rigorous process Pew found for determining the ideal level or rainy day fund
savings.” The report also encouraged other states to learn from Minnesota’s
methods.
“Minnesota now has its largest budget reserve in state history. This
helps Minnesota priorities like schools and health care during periods of
economic downturn,” said Lt. Governor Tina Smith. “Governor Dayton and I have
made responsible, sustainable budgeting a priority. This Pew Charitable Trusts
report is another indication that Minnesota is on the right track. We are
committed to continuing this work going forward.”
“In fiscal matters, we must operate government effectively and
efficiently, and we must be ready for unexpected and difficult times,” said Minnesota
Management and Budget Commissioner Myron Frans. “Our leading budget reserve methodology
and thoughtful policies demonstrate our commitment to responsible financial
management.”
Last week Commissioner Frans announced a projected state forecast
balance of $1.871 billion for fiscal year 2016-2017. Under law, the state
must allocate 33% of the November forecast balance to the budget reserve until it
reaches Minnesota Management and Budget’s recommended reserve level. Last
week’s forecast allocated $594 million to the budget reserve—following other
allocations. This amount, combined with the cash flow account, results in total
current budget and cash reserves of $1.947 billion, the state’s largest rainy
day fund ever.
This summer, Standard & Poor’s revised its outlook to positive from
stable on Minnesota’s debt, reflecting the state’s “significant progress in
rebuilding reserves.” The positive outlook indicates Standard & Poor’s
could raise the rating over the next two years.
“Our credit rating affects the interest rates on our bonds and results
in real savings. Our strong budget reserve is putting us on the path to return
to a AAA rating,” said Commissioner Frans.
Minnesota's statutory reserve funds—including a budget reserve and cash flow
account—are intended to provide a cushion
against unexpected fiscal stress caused by sudden changes in economic
conditions. The state's reserve target is based on an
annual evaluation of volatility in the state’s general fund tax system. The
target is a percentage of forecast tax revenues, allowing reserves to adjust
with revenue changes over time. Based on MMB’s most recent analysis, the current
target level is 4.8% of biennial (two-year) general fund revenues, or a $2.032
billion budget reserve account for the 2016-17 biennium.
View Minnesota Management and Budget’s
most recent reserve target report from Sept. 2015.
View
video of the Dec. 3 November Budget and Economic Forecast press conference.
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Media Contact: Janelle Tummel, 651-259-3742
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