Minnesota Shutdown May Cost State $23M Weekly

Minnesota’s economy may lose about $23 million a week in spending power from public and private workers idled by the shutdown of its government, according to Tom Stinson, the state’s economist.

The 23,000 state workers laid off in the wake of a partisan budget dispute may get only about half their average $1,000 weekly salary in unemployment benefits, Stinson said in a telephone interview from Minneapolis. That, plus the additional loss from employees of nonprofits and private construction workers, may mean a total $18 million taken from the economy, he said.

Stinson also estimated a secondary loss of as much as $5 million in weekly spending power by private workers, especially in the leisure industry, as furloughed employees cut back on spending if the closure drags on for a month or longer, he said. Although the loss is a fraction of the $2.4 billion in weekly state wages, the impact will become more noticeable the longer the closure lasts, he said.

“This is not going to produce a recession in Minnesota or anything like that, but it’s going to be a drag on the state’s economic growth,” said Stinson, a professor in the department of applied economics at the University of Minnesota.

The state’s government shut down at 12:01 a.m. July 1 after Democrat Mark Dayton, a first-term governor, and lawmakers failed to reach a budget agreement. Dayton has said he doesn’t want spending cuts alone to address a $5 billion deficit, and Republicans oppose his plan for an income-tax increase.

Essential Services

The state will lose revenue including $52 million per month because compliance officers at the Department of Revenue are laid off and not completing audits, and $1.25 million a day in lost lottery sales, said John Pollard, a spokesman with the Minnesota Management and Budget office.

Tax collections continue, as does funding for critical services including police and prisons, Pollard said in a telephone interview from St. Paul.

Ten-year general-obligation bonds from Minnesota issuers yield 2.96 percent on average, or about 0.18 percentage point more than the average top-rated debt of that maturity, according to Bloomberg Fair Value indexes. The yield difference is about 0.04 percentage point less than the six-month average, a sign the shutdown, which enters its sixth day today, isn’t hurting the state’s debt prices.

Holding Steady

The state won’t face pressure on its bond ratings, Moody’s Investors Service said in a June 29 report. Moody’s said Minnesota’s deficit represents about 15 percent of two-year revenue of about $34 billion. It rates the state Aa1, its second-highest grade, with a stable outlook.

Dayton’s talks with Republican legislative leaders ended yesterday without a deal. Dayton made two new proposals to help bridge what he said is a $1.4 billion gap between the two sides: a temporary 2 percent income-tax surcharge on annual income of more than $1 million, or increasing the 34.6 cent tax on a pack of cigarettes by $1, according to a letter released by his office.

Republican House Speaker Kurt Zellers called the discussions “disappointing” and said “things went backwards today,” according to the Minneapolis Star-Tribune.

Michael Brodkorb, a spokesman for Senate Republicans, sent an e-mail to reporters today saying that Dayton classified his chef and housekeeper/server as essential staff during the shutdown. Katharine Tinucci, Dayton’s spokeswoman, didn’t have an immediate response to an e-mail seeking comment.

Still Shovels

Besides the furlough of government employees and the shutdown of an estimated 100 public highway, bridge and building projects, as many as 10,000 construction workers could be unemployed because privately funded projects will be delayed with the furlough of state inspectors, David C. Semerad, chief executive of the Associated General Contractors of Minnesota, has said.

The state reached a deal with public-employee unions in which it agreed not to pay severance packages with unpaid vacation and sick time for laid-off workers in exchange for continuing health-care benefits, Pollard said.

Still, the state is losing revenue during the shutdown, he said. Besides the lost lottery and audit income, the Transportation Department is not generating $40,000 to $50,000 per week on passes to use highway express lanes, Pollard said in an e-mail. Lost revenue from not collecting parking fees plus various health and teaching licenses have not yet been estimated, he said.

“Nobody’s really claiming that a shutdown saves the state money,” Pollard said in a telephone interview.

To contact the reporter on this story: Mark Niquette in Columbus, Ohio, at mniquette@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.