When lawmakers returned to work in St. Paul Jan. 6, they began discussions on resolving the major issue before them - balancing the state's budget. The November Revenue forecast predicted a $4.85 billion budget shortfall for the 2010-2011 biennium, and that is without including inflation.
Collapsing revenue from income taxes, sales taxes and capital gains taxes has produced the daunting deficit, which totals around 13 percent of the projected $35.7 billion two-year budget.
State Economist Dr. Tom Stinson has been drawing attention to a couple of leading economic indicators that have changed dramatically since the November revenue forecast, meaning that in all likelihood the budget deficit will be even worse than current projections.
- Back in November, the state forecast predicted a 1.0 percent decline in real gross domestic product (GDP) in 2009. There was also a more pessimistic scenario, nicknamed "meltdown," that predicted a 2.4 percent decline. The January economic update now predicts a 2.5 percent decline in Real GDP.
- The January economic update shows that state revenues for November and December came in below forecasted projections even though our expectations were significantly lowered in the November Forecast. We will see the impact of these lower revenues on the size of our deficit when the February Forecast is released.
In his Jan. 15 State of the State speech, Gov. Tim Pawlenty urged bi-partisan cooperation in resolving the budget deficit. He indicated there would be significant cuts and reiterated his no-new-tax pledge.
While legislative leaders have also pledged a new spirit of cooperation, this new spirit was tested immediately as two visions for Minnesota's economic recovery collided following the State of the State speech. To view or read a transcript of the governor's speech, visit http://www.governor.state.mn.us/index.htm
The governor will present his budget proposal on Jan. 27 and then the Legislature will begin hearings and discussions. The next revenue forecast is due out March 3. After that date, lawmakers will begin making budget decisions in earnest.
The Constitutional deadline for adjournment is May 18, with the current state budget cycle ending on June 30.
