In its annual November forecast, the state announced a $373 million deficit in its current budget that runs through June 30, 2009, as Minnesota’s economic outlook shows a downward turn through mid-2008.
A $211 million structural deficit is expected going into the next biennium. However, those figures don’t account for inflationary increases in spending. When inflation is taken into account, the structural deficit in the next biennium grows by another $1 billion.
Overall, general fund revenues in the current biennium are expected to fall by 2.2%, or $739 million, over earlier predictions, while spending is projected to be about $66 million higher. A previous projection of a $294 million surplus and an opening balance are offsetting the new projected deficit to result in a $373 million shortfall.
The earlier forecast last February predicted growth of 2.9% in fiscal 2008 and 3.1% in fiscal 2009. Growth is now expected to be 2.3% and 2.2%, respectively. The state retains a $650 million budget reserve and $350 million of cash reserves.
“The outlook for the U.S. economy has changed materially since mid-summer,” according to the forecast issued by the Minnesota Department of Finance on Friday. The revised estimates are due in part to the expectation for further weakening in the housing sector, higher oil prices, and tighter credit standards. The state uses forecasting company Global Insight to help craft its estimates, which are issued in November and February. The governor uses the first forecast to compile a budget and the Legislature uses the second to finalize the spending plan.
Republicans and Democrats had mixed reactions. GOP Gov. Tim Pawlenty proposed a tax cut for state residents, while Democrats said a special session should be called to produce a capital bonding bill that would help promote economic development.
