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Tax update brings some good budget news

St. Paul, Minn. — (AP) With a dose of caution, state finance officials released a report Monday showing stronger-than-expected revenue collections in November and December.

The extra $66 million doesn't necessarily mean the deficit projection will shrink when a new economic forecast is produced, they said. The gains were largely in corporate income taxes, which tend to be volatile and constitute only a small part of overall state revenue.

"This is good news but it's only a little bit of good news," said state economist Tom Stinson. He added later, "It's highly unlikely that revenues will increase enough to eliminate the need for serious budget cuts in the current legislative session."

Gov. Tim Pawlenty must present his two-year budget to the Legislature by later this month. That will be based on a December report projecting a shortfall of at least $700 million.

Monday's update deals only with tax collections and doesn't delve into spending commitments. A new comparison of anticipated revenue and spending - used to determine whether Minnesota faces a surplus or deficit - will be issued in late February or early March.

Tax receipts, fee payments and other revenue totaled $2.7 billion for November and December. The amount was about 2.5 percent more than officials predicted.

But the same report warns that the figures don't include sales taxes brought in during December's holiday shopping. Merchants don't turn over sales tax revenue for December until late January.

Besides corporate taxes, which were $45.4 million stronger than previous estimates, the state saw $7.7 million more in tobacco settlement payments than it was counting on. Those payments, stemming from a 1998 lawsuit with cigarette makers, depend partly on national industry sales. But it's not clear whether the extra revenue signals an uptick in smoking or result from higher prices for tobacco products.

Lawmakers were careful not to read too much into the economic report.

"The news that state revenues during November and December were $66 million more than forecast is a good sign that our economy is continuing to grow," said Pawlenty, a Republican, in a written statement. "But it doesn't diminish the fact that we will have to make tough budget decisions in the coming months."