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State's fall revenue forecast coming up $1.95 billion short
By Laura McCallum
Minnesota Public Radio
December 4, 2001
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Minnesota has a projected budget shortfall of nearly $2 billion. That's almost double what many legislators had expected. The deficit means Gov. Ventura and the Legislature will need to look at cutting spending, dipping into the state's budget reserve and raising taxes to balance the budget.

According to state officials, Minnesota's economy has already softened, so there's little reason to believe the state can avoid the impact of a national recession. These officials predict the losses of over 34,000 jobs in Minnesota. See the full economic forecast report (pdf) and listen to the presentation by state economist Tom Stinson and Pam Wheelock, the commissioner of the Department of Finance.

No one at the Capitol had predicted anything close to a $1.9 billion budget shortfall. That's about 7 percent of the state's budget.

Two years after Finance Commissioner Pam Wheelock announced a surplus with the proclamation that the state had "a boatload of money", the boat appears to be sinking.

"The downturn in the national economy has taken the wind out of our sails here in Minnesota," Wheelock said.

Wheelock and state economist Tom Stinson blame the recession for the state's first budget deficit since 1992.

"The Clinton election campaign had a slogan. The slogan was, 'it's the economy, stupid.' My staff and I have come to the conclusion 'it's the stupid economy' that's doing it," Stinson said.

The state's income and sales tax collections are down. The biggest drop is in corporate taxes, which are 28-percent less than expected. Stinson says Minnesota lost 23,000 jobs in September and October, and with them, the income taxes they generate.

State economist Tom Stinson , left, and Department of Finance Commissioner Pam Wheelock announce the budget forecast.

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"This is what happens in a recession. Jobs are lost all over. Minnesota doesn't have defense-industry jobs that are being protected," he said.

Stinson says the recession appears to be hitting Minnesota even harder than many parts of the country, partly due to the state's prominent airline industry. Finance officials say revenues were down even before Sept. 11, and the terrorist attacks simply made the problem worse.

But Gov. Ventura says there's no reason to panic. He says Minnesota is better prepared than most states to weather the downturn.

"We have $653 million in budget reserve, and a cash flow account of about $350 million. That money isn't a solution to all of our problems, but it helps, and it puts us way ahead of other states when it comes to dealing with a shortfall," Ventura said.

Ventura says he hasn't ruled out calling a special session to deal with the deficit.

The chair of the Senate Finance Committee, Sen. Doug Johnson, DFL-Tower,is urging Ventura to do so. He says the longer the state waits, the worse the problem becomes.

MPR's Midday on December 4, 2001 featured House Speaker Steve Sviggum (above) and Senate Majority Leader Roger Moe in separate appearances. Listen to the entire archived broadcast audio. You may also listen to only the Sviggum segment or the Moe segment of the broadcast.

But House Speaker Steve Sviggum, R-Kenyon, says the Legislature should wait until the next revenue forecast comes out before adjusting the budget.

"I'm hoping, banking and I think very thoughtfully thinking, that the February forecast is going to be a little bit better than this forecast. This forecast is probably the one that was low-balled a little bit. My guess is, if they had an opportunity to take a better- or a worse-case scenerio, I think it looks like they took a worse-case scenerio," said Sviggum.

Sviggum's only recommendation for the governor at this point is a hiring freeze for state employees.

Senate Majority Leader Roger Moe, DFL-Erskine, says he's waiting to see the governor's recommendations for balancing the budget. He was unwilling to offer Ventura any suggestions.

"You have a governor that for three years has villainized the Legislature, has accused us of everything you can possibly imagine, has taken credit for tax cuts, tax reform and tax rebates, and now starting tomorrow, I can assure you his arms will be wide open asking for help," Moe said.

Ventura says the state should use its budget reserve to buy time to solve the problem. Ventura says he will first try to address the shortfall through spending cuts, but says he won't rule out tax increases.

House Republicans say they won't agree to tax hikes, but Senate DFLers say with a deficit this big, everything should be on the table.

More from MPR
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    More Information
  • November 2001 economic forecast Minnesota Department of Finance (pdf)