State Deficit Forecast Shrinks by $1.2 Billion

Most Minnesota legislators have been addressing the $6.2 billion deficit over the last few months, and now they're addressing a new number—one that's much smaller at just more than $5 billion.

“Seems like the first time we’ve had any good news on this front since 2007,” says Rep. Ryan Winkler (DFL-District 44B), who represents Golden Valley and St. Louis Park. “At some point, the economy has to turn into a recovery, and I think these numbers reflect that.”

The more-optimistic forecast still leaves a huge hole for the state to climb out of, but Sen. Ron Latz (DFL-District 44), who represents Hopkins and Golden Valley, noted that the projection is a 20 percent improvement.

“It is pretty significant,” he says.

The Minnesota Management and Budget Office released its first-round of numbers in November, but Monday’s forecast includes changes in tax collections and unemployment.  Monday’s numbers will be used to build a budget for the next two years.

In a news conference Monday, Tom Stinson, state economist with the MMB, said he has "absolutely no doubt" that President Obama's stimulus plan has helped the economy, and local lawmakers agree.

"We credit federal tax policy, the new healthcare law and the stimulus plan for the increase in revenue like capital gains," says Rep. Lyndon Carlson (DFL - 45B), who represents Crystal and Golden Valley.  "But I can't underscore enough that we still have a $5 billion deficit."

Carlson also says he's concerned about using the new numbers for the next two years when tensions in the Middle East could affect energy costs - a big source of spending both in the public and private sectors.

"The new forecast looks at oil at $90 a barrel," he says.  "But if oil prices rise significantly, we're looking at a more negative impact on the deficit."

But Winkler doesn't think as much emphasis needs to be put on energy costs - at least, not yet.

"I'm not laying awake at night wondering if the governments in Libya and Bahrain are going to put the Minnesota economy in a tailspin," says Winkler.  "But we need to be ready for all circumstances."

To combat the overall $5 billion deficit, Gov. Mark Dayton has proposed a plan that would raise $3.3 billion by taxing the state's highest earners, an idea Republicans have rejected. But a Republican proposal to solve the deficit entirely through spending cuts has not been well-received by the Democratic governor or Golden Valley representatives.

"We've said all along there should be a balanced approach," says Carlson.  "We need both increased taxes and cuts in spending.  And if you look closely at some of the bills proposed by the majority, they are willing to budge.  They tend to use the word 'fees' instead of taxes, but we know it's essentially the same thing." 

By law, legislators must balance the budget by the time the session adjourns on May 23, or risk going into a special session.

“We still have a major disconnect between a need for services and the amount of revenue coming in," says Winkler.  "Taxes are still going to be front and center of budget talks.”