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Deficit grows by $25 million on new forecast
by Laura McCallum, Minnesota Public Radio
February 27, 2003

"The bottom line is we have weaker wage growth," said State Economist Tom Stinson, right. "Only slightly weaker ... but that leads to lower revenue growth." At left is finance commissioner Dan McElroy. (MPR Photo)

State finance officials say Minnesota's deficit is projected to grow slightly, by an additional $25 million over the next two years. A new revenue forecast bumps up the size of the deficit to $4.23 billion through June 2005. Gov. Tim Pawlenty says the new numbers don't change his commitment to balance the budget without raising taxes.

St. Paul, Minn. — Finance officials say Minnesota's budget outlook has worsened slightly since the last forecast in November. They say Minnesota continues to lag behind the national average in job growth. The new forecast estimates that the shortfall in the current fiscal year will increase by $11 million, and the deficit in the next biennium will grow by $14 million.

But state economist Tom Stinson cautions that the forecast includes a great deal of downside risk. He says the forecast makes two key assumptions that might not pan out.

	'It ain't better'

"First, there has to be a short, successful war with Iraq. Successful doesn't mean just victory; everybody's guaranteeing that. It means no sabotage of oilfields, it means no domestic terrorist incident. And there has to be a relatively strong fiscal stimulus package passed by Congress and effective in 2003," Stinson said.

Stinson says if a war with Iraq drags on, or there's a stalemate, or there's no economic stimulus package, the economy wouldn't grow as fast. While the forecast shows the projected deficit growing by $25 million, that actually translates into a change of $125 million for the governor's budget. That's because Pawlenty had already accounted for changes on the spending side, but not on the revenue side. Pawlenty says that doesn't change his no-tax-increase pledge.

"The situation is about the same. And that means it's a crisis, it's terrible, and now we're going to have to move forward accordingly. And now the Legislature needs to act. We can't just wait for better news because the better news isn't coming," Pawlenty said.

We can't just wait for better news because the better news isn't coming. - Gov. Pawlenty

Pawlenty says he'll revise his budget proposal within a week. He says if lawmakers don't move quickly to address the current $11 million projected shortfall, he'll make another round of spending cuts on his own.

House Republicans say they'll stand with the governor, and they won't raise state taxes. They say now that they know the exact numbers they need to work with, they're prepared to move quickly on budget bills.

House Speaker Steve Sviggum of Kenyon challenged Senate Democrats to do the same. "Where are the Democrats? All I'm asking is, you can't keep criticizing without at some time or another laying out a plan. And the time is coming pretty short, pretty quick for them to lay out a plan. And then believe me, there will be some criticism the other way."

Senate DFL leaders say they'll have a plan in a month or so, after they complete a series of town hall meetings around the state. They say the feedback so far indicates many Minnesotans are concerned about proposed cuts in the governor's budget, and some are willing to support an income tax surcharge or a sales tax on clothing to help balance the budget.

Senate Majority Leader John Hottinger of St. Peter says now that the governor has to come up with another $125 million in his budget plan, he hopes the changes are equally distributed.

	DFLers promise an alternative

"There certainly are some discrepancies in terms of trying to share the challenge in his first round, especially geographically, so we hope that he doesn't aggrevate the disparity about who pays for resolving the budget process," Hottinger said.

Hottinger says the governor's budget proposal would result in tuition increases for college students, fee increases and property tax increases. He says Republicans seem to think it's OK to raise local property taxes, as long as they don't touch state taxes.

House Republican leaders say they don't want to see property tax hikes, and would go along with a proposal by Senate tax chairman Larry Pogemiller to freeze property taxes. Pogemiller's bill cleared his committee, with Senate Republicans voting against it.

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