MN Budget forecast reflects economic insecurities

02/28/2007

By Patricia Lopez, Star Tribune
Last update: February 28, 2007 – 12:15 AM


Amid rising economic turbulence nationally, state leaders will take a deep breath today and release a budget forecast that tries to project the state's financial outlook for the next two years.

"We anticipate some weakness in the economy in this forecast," Tom Stinson, state economist, said Tuesday. "The question is whether we've anticipated enough or too much."

The February economic forecast projects state revenues and expenditures, setting the stage for budget negotiations that will determine what the state spends on everything from roads to schools.

The unease surrounding this forecast stems in part from a stock market tumble Tuesday that some described as a "global plunge," state unemployment figures that have worsened steadily since last summer and mounting concerns about a national economic slowdown.

"The last 48 hours have not been filled with economic good news," Stinson said. However, much of the recent turmoil may not be reflected in today's official forecast, which relies on national data gathered at the beginning of February.

Earlier on Tuesday, Gov. Tim Pawlenty said he expected a largely "status quo" forecast that might vary up or down by $200 million.

Given an overall two-year budget of $31 billion, that may not sound like much, but legislators are fretting that a downward deviation could derail most new spending plans.

The previous forecast in November had projected a $2 billion surplus, which spurred a multitude of proposals even though half of that figure was to have been a one-time increase that could not be used to fund long-term programs. DFLers, who control the Legislature, argued that much of the remaining $1 billion might need to be reserved for inflation, which is no longer counted in state economic forecasts.

"We go down by $200 million and there goes just about everything I thought we'd realistically be able to spend," said Sen. Linda Higgins, DFL-Minneapolis, who leads the public safety budget division. "We'll be hurting."

Wayne Cox, executive director of Minnesota Citizens for Tax Justice, said the forecast "will be obsolete as soon as it comes out. There's a lot going on nationally and none of it looks good."

Among the signs Stinson found disturbing: a state unemployment rate of 4.4 percent -- the highest since early 2005. Officially, the state's forecast is built around the number of Minnesotans employed -- a figure that rose by 13,000 in January. But Stinson on Tuesday was quietly taking notice that Minnesota's unemployment rate, while still lower than the national figure of 4.6 percent, has been ticking steadily upward from June's low of 3.8 percent.

That means another 21,000 Minnesotans have joined last summer's job-hunting ranks of 110,000.

January revenue drop

In addition, January's state revenue collections fell short of projections in every major tax category -- "another piece of not very good news," Stinson said.

Had he run across any pieces of good news? "No," Stinson replied.

Tuesday's stock market dip was sparked in part by concerns that the U.S. and Chinese economies are experiencing a slowdown.

"There is increasing concern of some weakening nationally," said Steve Hine, research director at the state's department of employment and economic development. "That would certainly impact our state's operations as well."

Stinson noted that the stock market and unemployment rates "are not our most reliable economic indicators."

The most reliable indicator, he said -- payroll employment numbers -- continue to show "an economy with a significant amount of strength and that's the number we'll continue to pay close attention to."

The forecast will be released this morning at the state Capitol.