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Tough Economic Times Call For Tough Decisions By State Leaders

Minnesota Management and Budget (MMB) released its November economic forecast showing the state faces a projected $1.2 billion deficit in the 2010-11 biennium, and a potential $5.43 billion deficit in the 2012-13 biennium. This deficit is $995 million larger than previously projected.

Approximately 70% of the forecasted deficit is due to lower than expected income tax receipts, stemming from a decline in wages. Total Minnesota wages, expected to decline by 5.5% in 2009, provide 75% of the state’s income tax base. It is estimated that General Fund revenues for FY 2010-1011 may be $1.156 billion, or 3.7%, below previous estimates, while spending projections are $44 million less than anticipated.

Job losses in the U.S. have reached 7.3 million and are expected to exceed 7.7 million by spring 2010. MMB anticipates that 154,000 jobs in Minnesota will be lost before the expected recovery is noticeable. MMB Commissioner Tom Hanson reported that jobs are not returning as quickly as we would like and the slow recovery in jobs and wages continues to impact state government budgets across the country.

While there are differing opinions on the best way to handle the budget problems, legislators and the Governor’s office agree that additional cuts must be made.

To balance the budget as required by the state constitution, the current budget deficit must be resolved by the end of the biennium. The options diminish as time goes by and money is spent. According to Hanson, 22% of the biennial budget has been spent. It requires $40 million-$50 million in General Fund spending each day to operate the state government.

Governor Tim Pawlenty has been visiting with legislators and requesting that they begin committee hearings so that reductions can be passed promptly when the legislature reconvenes on Feb. 4. Chair of the House Finance Committee Rep. Lyndon Carlson has requested that division chairs review and find long and short term cuts. The Governor is also contemplating withholding a portion of Local Government Aid scheduled to be paid by December 31st.

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