Lawmakers poised to take on $935m deficit

By Susan Larson | The Daily Journal

Published Friday, February 29, 2008

Cuts seem inevitable as the state faces its most extreme deficit in five years.

That the projected budget deficit went to $935 million from $373 million in Nov-ember to February didn’t come as much of a surprise to local legislators, taking into consideration the housing market, energy prices and slow economic growth

“It’s going to add to the challenges we already face,” said Dist.10 Sen. Dan Skogen (DFL-Hewitt). “The economic realities of Minnesota are already putting a strain on us.”

A solution is out there, said Dist.10A Rep. Bud Nornes (R-Fergus Falls), but it’s going to take a lot of work from everyone, .

“The leadership, government officials and all of us are going to have to look closely at the budget to erase the problem,” Nornes said. “The governor thinks we can do this without raising taxes. The first thing he will probably do is look at various departments and agencies. Some assistant commissioners and other positions (from various departments) maybe could be cut. That’s a thought I’ve heard tossed around.”

Spending cuts, dipping into cash reserves, or shifting money via accounting changes are some avenues to explore. Gov. Tim Pawlenty has said he would oppose tax increases. The state has roughly $1 billion in rainy-day reserves, but those funds are a one-time use not intended for long-term use.

“I think everything is on the table at this point,” Skogen said. “We need to be fair and we have to balance the budget.”

Skogen would prefer not to dip into the budgets of the elderly, the very young and veterans.

Although the budget does not have to be balanced until June 2009, “We need a solid plan in place by they time we adjourn in May,” Nornes said. “This will be a test of the new leadership.”

Pawlenty is expected to present his plan next week.

“This is my first deficit,” Skogen said. “I want to see what the governor is going to do before I do anything. I’m looking to him for leadership.”

The slow-down of the economy will be short, probably into the third or fourth quarter of 2008, Nornes predicted.

“This is mild compared to 2003 and 2004, when it was more than $4 million,” he said.

“This short, mild recession eliminates about one year of economic growth and one year of state revenue growth,” according to the budget report. “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.”

This is the last forecast before the end of the 2008 session, which ends in May. The next forecast will published in November.

The budget report is based on a mild recession for the first six months of this year. Projected revenue streams are down $530 million from November’s prediction. This includes $313 million less in individual income tax and $139 million less in corporate income tax. Individual income taxes have dropped 2 percent since the November report. Slower growth in wages and decreases in capital gains payments, interest and dividends are to blame, according to finance officials.