Nation: Economists predict government shutdown would send Minnesota into recession

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Nation:Nation: Economists predict government shutdown would send Minnesota into recession Copyright 2001 Nando Media Copyright 2001 Scripps Howard News Service

By CONRAD DEFIEBRE, Minneapolis-St. Paul Star Tribune

MINNEAPOLIS (June 24, 2001 2:49 p.m. EDT) - As Minnesota's largest single employer, state government could put a significant drag on the state's economy if it shut down most operations next month due to a legislative tax and budget impasse, leading economists say.

"It would definitely be big, bigger than any kind of private strike we would envision," said Paul Anton, chief economist of Anton, Lubov & Associates of Minneapolis. "And at a time when we are in an economic slowdown, it would be especially bad to throw in a government shutdown. It might push us into a local recession."

Such a sweeping effect is possible because the economic presence of state government extends far beyond its 53,000 employees - equal to the Minnesota work forces of Northwest Airlines, 3M Co. and Wells Fargo and Co. put together. The state payroll is about $175 million a month.

But the flow of many more millions of dollars could be stalled as privately contracted road construction projects and some state aids to schools and cities are stopped.

And the closing of state parks at the peak of the vacation season would cut sharply into the private tourism business, state economist Tom Stinson said. "If a shutdown changes people's vacation decisions, that money's going to be spent out of state."

There were signs of progress in resolving the deadlock last week, as Gov. Jesse Ventura and legislative leaders settled key tax issues. Their compromise would significantly reduce taxes on all types of properties and would provide most homeowners with a cushion against any longer-term tax increases.

But House Speaker Steve Sviggum, R-Kenyon, cautioned that many spending and policy decisions still need to be negotiated, including proposed abortion restrictions and how strictly to enforce welfare time limits.

Sviggum said that until the tax and budget bills are approved by the Legislature and signed by the governor, everyone should continue to prepare for a shutdown that could begin next Sunday.

Last week, officials announced that if there is a shutdown, more than 24,000 state workers would be idled. From transportation to natural resources to education to commerce to health, many departments would be reduced to virtually nothing.

"People might be postponing a lot of decisions," said Lee Munnich, a senior fellow at the University of Minnesota's Humphrey Institute of Public Affairs. "There's an impact on productivity when people are worrying about what might happen and planning for a shutdown."

State government is an economic force far beyond the capital city. Half of state jobs are outside the Twin Cities area, and more than half of state workers live outstate, according to a new state Finance Department study. Nearly two-thirds of the 56.4 million square feet of state facilities are outstate as well.

With state, community and technical colleges, state hospitals, prisons and regional agency offices spread throughout Minnesota, government tends to serve up a bigger slice of the economic pie outstate than in the metro area.

A long shutdown would cause ripple effects from the loss of those payrolls, said Bruce Erickson, business and government professor at the university's Carlson School of Management.

Eventually, he said, every lost job strips four or five others from the economy as idled workers cut back spending on everything from cars to clothing to casinos. And the effect of curtailed spending is multiplied 1.6 to 2times throughout the economy, he said.

Copyright 2001 Nando Media Copyright 2001 Scripps Howard News Service

By CONRAD DEFIEBRE, Minneapolis-St. Paul Star Tribune

MINNEAPOLIS (June 24, 2001 2:49 p.m. EDT) - As Minnesota's largest single employer, state government could put a significant drag on the state's economy if it shut down most operations next month due to a legislative tax and budget impasse, leading economists say.

"It would definitely be big, bigger than any kind of private strike we would envision," said Paul Anton, chief economist of Anton, Lubov & Associates of Minneapolis. "And at a time when we are in an economic slowdown, it would be especially bad to throw in a government shutdown. It might push us into a local recession."

Such a sweeping effect is possible because the economic presence of state government extends far beyond its 53,000 employees - equal to the Minnesota work forces of Northwest Airlines, 3M Co. and Wells Fargo and Co. put together. The state payroll is about $175 million a month.

But the flow of many more millions of dollars could be stalled as privately contracted road construction projects and some state aids to schools and cities are stopped.

And the closing of state parks at the peak of the vacation season would cut sharply into the private tourism business, state economist Tom Stinson said. "If a shutdown changes people's vacation decisions, that money's going to be spent out of state."

There were signs of progress in resolving the deadlock last week, as Gov. Jesse Ventura and legislative leaders settled key tax issues. Their compromise would significantly reduce taxes on all types of properties and would provide most homeowners with a cushion against any longer-term tax increases.

But House Speaker Steve Sviggum, R-Kenyon, cautioned that many spending and policy decisions still need to be negotiated, including proposed abortion restrictions and how strictly to enforce welfare time limits.

Sviggum said that until the tax and budget bills are approved by the Legislature and signed by the governor, everyone should continue to prepare for a shutdown that could begin next Sunday.

Last week, officials announced that if there is a shutdown, more than 24,000 state workers would be idled. From transportation to natural resources to education to commerce to health, many departments would be reduced to virtually nothing.

"People might be postponing a lot of decisions," said Lee Munnich, a senior fellow at the University of Minnesota's Humphrey Institute of Public Affairs. "There's an impact on productivity when people are worrying about what might happen and planning for a shutdown."

State government is an economic force far beyond the capital city. Half of state jobs are outside the Twin Cities area, and more than half of state workers live outstate, according to a new state Finance Department study. Nearly two-thirds of the 56.4 million square feet of state facilities are outstate as well.

With state, community and technical colleges, state hospitals, prisons and regional agency offices spread throughout Minnesota, government tends to serve up a bigger slice of the economic pie outstate than in the metro area.

A long shutdown would cause ripple effects from the loss of those payrolls, said Bruce Erickson, business and government professor at the university's Carlson School of Management.

Eventually, he said, every lost job strips four or five others from the economy as idled workers cut back spending on everything from cars to clothing to casinos. And the effect of curtailed spending is multiplied 1.6 to 2times throughout the economy, he said.

http://www.nandotimes.com/nation/story/32239p-541093c.html

-- Martin Thompson (mthom1927@aol.com), June 24, 2001


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