CHICAGO - Minnesota's Finance Department unveiled a new revenue forecast yesterday that blames the national economic slump for a $935 million hole in the state's current budget, more than double the amount forecast three months ago.
The deficit going into the fiscal 2010-11 biennium, that begins July 1, 2009, rose to $1.1 billion from a previous estimate of $211 million. When that figure is adjusted for inflationary increases, the figure rises by another $1 billion.
The state's November forecast had projected a $373 million shortfall in the current budget that runs through June 30, 2009. The state issues formal revenue projections at the end of November and February. The latest, unveiled yesterday, revised that figure upward to $935 million.
Gov. Tim Pawlenty, who earlier this week ordered a hiring freeze, said in a statement that a plan to balance the budget would soon be released and it would rely on spending cuts. "Raising taxes is not the answer to balancing our budget. Like families and businesses are doing in this tough economy, government needs to tighten its belt and live within its means," he said.
General fund revenues are expected to total $32.5 billion, or $530 million less than the November estimate, and expenditures are expected to rise by another $64 million. A reduction in the level of $33 million in funds held in a special reserve results in the $935 million deficit.
Due to timing issues, the estimates do not include additional spending expected as a result of the $6.6 billion transportation package approved by the Legislature. Pawlenty vetoed the measure, but lawmakers Monday overrode the veto. The report notes that the plan would add $2.8 million in spending in the current biennium and would reduce general fund revenues by $77 million in the next biennium.
Individual income tax collections are expected to decline in the current biennial budget by $313 million from the last estimates while corporate receipts were revised downward to $159 million. Sales taxes and motor vehicle sales taxes are also expected to also slip.
The $33 million that was to go into the state's reserves will come from a specific targeted case-management reserve account that will provide counties with medical assistance case management service in anticipation of federal funding reductions. The state's $653 million budget reserve and $350 million cash flow reserve remain intact.
The November figures were based on economic predictions that the economy would remain weakened but that higher energy prices and the housing slump were manageable and an actual recession could be avoided. "Since the beginning of 2008, though, the bad economic news has outweighed the good," the state report read, citing its economic adviser Global Insight Inc.'s current forecast that calls for a two-quarter recession for the first half of the year with a strong bounce back in the latter half due the national economic stimulus package.
The state's $4 billion of general obligation bonds are rated AAA by Fitch Ratings and Standard & Poor's, and Aa1 with a positive outlook from Moody's Investors Service.
