Budget deficit casts shadow over 2010 Legislative Session

By Judy Erickson, Government Relations Director

The 2010 Legislative Session officially begins February 4, and the constitutional deadline for adjournment is May 17. While legislators will want to do the major work of the session quickly, the projected budget deficit complicates things just a bit.

Minnesota’s economy is starting to heal, but it is going to be a long, slow recovery, according to the state’s most recent budget forecast, which was released early in December. Minnesota is estimated to have a new $1.2 billion shortfall in the current biennium, driven by a larger-than-expected drop in income tax revenue. The state now faces an estimated $6.6 billion deficit for Fiscal Year 2012-2013 (including inflation). The next revenue forecast is due at the end of February.

The new $1.2 billion shortfall is in addition to a $6.4 billion deficit addressed by the 2009 Legislature. This new deficit must be addressed before the biennium ends on June 30, 2011.

The Legislature will have to act fairly quickly when they convene in early February, since we are already about halfway through the first year of the biennium, FY2010. The state has already spent 22 percent of the Fiscal Year 2010-2011 budget. That means the $1.2 billion deficit works out to be a about 5 percent of the remaining general fund for the biennium.

The budget deficit will overshadow the Legislature’s desire to quickly pass a bonding bill. This year, even more than in 2008, the Legislature is looking at the bonding bill as a way to spur job creation in Minnesota. But there will be disagreement as to how much the state can afford to spend. The size of the bonding bill will be directly tied to how much the general fund can be tapped to pay for the debt service.

Gov. Tim Pawlenty proposed what he calls a financially responsible bonding plan. The Legislature is talking about a bonding bill that would be near $1 billion dollars; there was more than $3 billion in bonding requests.

Under Pawlenty’s recommendations, the state would issue $685 million in general obligation bonds. The actual price tag of state bonding rises to $815 million when trunk highway bonds and other funding sources are included.
The governor has warned lawmakers against passing a larger bonding bill and said that if they did, he might veto the entire bill as opposed to trimming it with line-item vetoes.

Both the House and Senate expect to put their bonding bills together the first weeks of the session.