Minnesota’s budget deficit hits nearly $1 billion

02/28/2008

The projected deficit for the two-year budget cycle has grown to $935 million. The Associated Press was shown the figure by a Capitol source who asked not to be named because the official release is scheduled for later today.


By BRIAN BAKST,
Associated Press
Last update: February 28, 2008


ST. PAUL - Minnesota's projected budget shortfall has grown to $935 million, The Associated Press has learned.

A Capitol source showed the figure to AP. The source requested anonymity because the official release was scheduled for later Thursday.

As the economy has weakened, the state's estimated revenue streams have followed suit. Their projection for money coming in is down $530 million from what was expected in November, including $313 million less in individual income tax and $139 million less in corporate income tax.

The downturn in individual income taxes — a 2 percent falloff since the November report — is due to slower growth in wages and decreases in capital gains payments, interest and dividends.

Persistent problems in the housing market, concerns over a credit crunch, high energy prices and downgraded economic growth predictions combine to push the deficit estimate up. The report is based on a mild recession for the first six months of this year.

"But this short, mild recession eliminates about one year of economic growth and one year of state revenue growth," the report reads. "The federal stimulus package helps limit the recession's length, but the rebates come too late to prevent U.S. output from declining in the first half of 2008."

Lawmakers have to solve the deficit problem by June of next year because the state constitution requires a balanced budget. They say they probably won't resort to tax increases to do it.

They can use spending cuts, dip into cash reserves, or shift money via accounting changes. But Gov. Tim Pawlenty has said he would oppose tax increases, and leading Democratic lawmakers said it would be futile to fight him on it.

This is the last forecast before the end to the 2008 session, which is required to conclude in mid-May. The next forecast won't be published until November.

The state has roughly $1 billion in rainy-day reserves, although that money is a one-time patch that can't be used to repair a lasting budget problem. They might be able to pull in more money by getting rid of a tax break being used by corporations with oversees operations.

But that still leaves a sizable hole, meaning lawmakers will almost certainly resort to spending cuts.

Two areas consume roughly 70 percent of Minnesota's budget: K-12 education and government health care assistance programs.

"My back is up against the fire and the wolves are circling," House K-12 Education Finance Chairwoman Mindy Greiling, DFL-Roseville, said Wednesday. "The idea of K-12 once again being the cash cow to paying the deficit, I'm going to be fighting that tooth and nail."