CHICAGO - Minnesota faces a $4.6 billion deficit in the next biennium, down about $278 million from the last formal estimate in December, thanks to federal stimulus funds.
The latest state economic forecast projects a $1.2 billion drop in revenues and increased spending of $152 million over the November forecast, which is released in early December. An ending balance now expected in the current budget that runs through June 30 along with federal funds will help scale back the fiscal 2010-11 deficit.
Without the additional federal money, the state would face a $6.4 billion deficit as Gov. Tim Pawlenty and lawmakers work on a new budget for the biennium that begins July 1.
The state included in its forecast only funds it is to receive through the Federal Medical Assistance Percentage. About $464 million will be received during the current budget cycle and another $1.36 billion in the next cycle.
The funds for use now will offset any revenue declines in the current budget and allow the state to end the fiscal year with a balance of $236 million and $350 million in its cash-flow account. The governor had previously drained the state's rainy-day fund of its last $155 million and cut allocated spending by $271 million to close the current year deficit announced in December.
"The federal stimulus has helped cushion the blow of a deteriorating economy," said Tom Hanson, commissioner of the state's management and budget office. "Nonetheless, this is very sobering economic news."
The forecast also predicts a longer and deeper recession than anticipated in the November forecast. The governor typically uses the November forecast to craft a budget and lawmakers make revisions based on the February forecast.
Citing the latest figures, Pawlenty called on lawmakers to support his proposed budget, which does not rely on tax increases.
"As we balance the budget, state government needs to reflect the realities that families and businesses are facing," he said. "We need to focus on creating an environment that will grow jobs, tighten government's belt by reducing spending, and avoid making the situation worse by raising taxes."
Pawlenty's $57.6 billion budget eliminates the deficit and raises some funds to rebuild the state's reserve by cutting $2.5 billion in spending and by raising $3.1 billion in one-time infusions of revenue. That includes nearly $1 billion of bonds that would carry the state's appropriation pledge but be repaid with tobacco settlement funds.
Minnesota's $4.3 billion of general obligation bonds are rated AAA with a negative outlook by Fitch Ratings.
Moody's Investors Service rates the state Aa1 with a stable outlook and Standard & Poor's rates it AAA with a stable outlook.
