State predicts $373 million shortfall

11/30/2007

Falling corporate, sales taxes are to blame, officials say.


By Mark Brunswick,
Star Tribune
November 30, 2007


Minnesota officials are predicting a $373 million budget shortfall for the remainder of the current two-year budget cycle, blaming a generally weaker U.S. economy and plummeting corporate income taxes in the state.

State officials announced the deficit forecast today. Previously a balance of $294 million had been expected.

Overall, revenues are expected to be down $739 million from projections in the next two fiscal years. Corporate income taxes are projected to fall 14 percent below previous estimates, or by $318 million. Sales tax revenue is also expected fall 3.3 percent, or by $309 million, which is being attributed to an overall weaker outlook for both the U.S. and Minnesota economies.

State spending for 2008-2009 is expected to increase $66 million, or a modest 0.2 percent.

While only a prediction, the state's November budget forecast sets the tone for budgeting and other planning, particularly as the governor and legislature begin strategizing for the 2008 legislative session.

Like much of the nation, Minnesota's economy has taken a hit from the slumping housing market, higher energy prices and a struggling manufacturing sector. Unemployment rates are higher than they have been and predictions of future economic growth have been downgraded.

"This is a slowdown, not a recession," State Economist Tom Stinson said.

The timeframe that matters most to lawmakers is the next 18 months. In May, the Legislature finalized a $34.5 billion budget that runs through June 2009.

As they adjourned last spring, many lawmakers were hopeful they'd be able to return in the 2008 session with room to bump up spending for schools, state-sponsored construction and property tax buffer programs.

"People are going to have to take a step back again," Sen. Tarryl Clark, DFL-St. Cloud, said Thursday. She worried that Friday's report would be the "tip of the iceberg."

"The real question is what are we going to see by February," she said.

That's when the next economic forecast is due. Two are done each year. Quarterly budget reports only look at revenue.

By tradition, even-year sessions are focused mainly on assembling a long-term borrowing bill to pay for new college buildings, roof repairs at government offices, wastewater treatment projects and other public works construction.

But lawmakers are free to make budget adjustments, too. Whether they are cosmetic or far reaching depends on the signals in the budget forecast.

The news is a reversal from the uplifting report presented last November. Then, finance officials announced a projected surplus just shy of $2.2 billion. That estimate mostly held up when the next edition was released in February.

--The Associated Press contributed