Support the Timberjay by making a donation.

Serving Northern St. Louis County, Minnesota

Forecast: State faces additional $1.2 billion gap

Tom Klein
Posted 12/3/09

Minnesota faces a projected $1.2 billion budget deficit in 2010-11 that could swell to a stunning $5.4 billion over the next three years, according to the state budget forecast released …

This item is available in full to subscribers.

Please log in to continue

Log in

Forecast: State faces additional $1.2 billion gap

Posted

Minnesota faces a projected $1.2 billion budget deficit in 2010-11 that could swell to a stunning $5.4 billion over the next three years, according to the state budget forecast released Wednesday.

The figure rises to $6.5 billion with inflation, but state officials are prohibited by statute from including inflation in the official forecast, and is so large, in part, because federal stimulus money dries up in 2011.

Much of the shortfall is the result of a steep drop in income tax revenue. State Economist Tom Stinson said the decline in income tax accounts for 70 percent of the deficit, and added that Minnesotans’ wages have taken an unprecedented fall and the average work week has reached “historic lows.”

In response, Gov. Tim Pawlenty said he is considering a second round of emergency budget cuts that could hit cities as early as this month should the governor tap $400 million earmarked for local aid payments in December.

Jim Miller, president of the League of Minnesota Cities, expects Pawlenty to unilaterally reduce state aid to cities and counties. “I don’t think it’s a question of if, but how much,” said Miller.

House Majority Leader Tony Sertich said further cuts to local government aid would be devastating for communities, many of which were forced to make drastic cuts in services and to raise property taxes.

“That’s just the governor passing the buck,” said the Chisholm DFLer, “and leaving the real hard decisions to local governments.”

Burning through money

Complicating matters is the fact the state is already five months into the 2010-11 budget period and has burned through about 22 percent of its funds, according to Jim Schowalter, state budget director.

That means the $1.2 billion deficit forecast for 2010-11 will have to be made up from a smaller piece of the pie.

To slow spending, the governor has instructed state agencies to hold back three percent of their budgets until lawmakers take a crack at balancing the budget.

But reaching an agreement with the governor will be difficult. Pawlenty reaffirmed his pledge not to raise taxes, terming the mounting deficits “significant, but solvable.” And he hinted that he may unilaterally enact cuts as he did last summer when he trimmed $2.7 billion from the state budget singlehandedly. Those cuts have brought a pair of lawsuits challenging the governor’s budget-cutting authority.

State Rep. David Dill, DFL-Crane Lake, is bracing for similar action by the governor this session.

“I’d like to think we can do something creative without further harm,” said Dill. “But the truth is the governor has shown that he is willing to go off on his own...something along those lines could happen again.”

Sertich said the governor needs to work with legislators on a solution to the budget crisis and said tax increases should not be off the table.

Both Dill and Sertich said a key to the state’s financial crisis is to create more jobs. DFLers are pushing a robust bonding bill to provide both short-term construction jobs and provide needed upgrades to the state’s infrastructure.

Indeed, Sertich said, had the governor accepted the Legislature’s compromise budget plan, the state’s budget deficit would have been smaller because it preserved more jobs.

He also hopes that the governor will be more willing to consider other budget-cutting proposals that were rejected last year, including a freeze on state travel and trimming political appointees.

“At the end of the day, I’d rather cut a political appointee than a nurse or school teacher,” said Sertich.

Dill said everyone will feel some share of the budget pain, but the state’s most vulnerable should be shielded from as much harm as possible.

Long-term solutions

In the past,, the governor has relied on gimmicks, such as delaying state payments to schools, to give the illusion of a balanced budget. Sertich noted that the governor withheld 27 percent of school funds for 2009-10 and he cautioned districts not to expect repayment of that $1.8 billion soon.

“If we paid back all of the governor’s shifts and gimmicks, the deficit would be around $8 billion,” he said.

Sertich said those gimmicks have been used up, but the governor has introduced a few new twists. He has suggested borrowing $1 billion to run state operations, a plan that would cost the state about $600 million in interest and which got a chilly reception from lawmakers on both sides of the aisle.

In addition, Pawlenty has proposed a constitutional amendment similar to California’s law that restricts spending to the amount of revenue actually collected in the previous biennium. Sertich noted that California is facing a huge financial crisis and observed that the seven previous budgets presided over by Pawlenty never lived up to what he has proposed in the amendment. “So his proposal is to do as I say, not as I do,” said Sertich.

Stinson also spoke about the need for long-term solutions and warned state lawmakers not to expect an economic recovery to replenish state coffers and erase the deficits.

“We must make permanent structural changes in both spending and revenue or we just continue to push the hole out into the future,” the state economist told lawmakers.

state budget