In a Rare Reversal, Minnesota Deficit Forecast Falls By $209M

CHICAGO — In some rare positive news, Minnesota’s new revenue forecast released yesterday trimmed $209 million from the previously projected $1.2 billion deficit in the current two-year budget, although a $5.8 billion hole looms next year as the state prepares a new spending plan.

Though $209 million is not much of a drop, it marks a reversal in recent years of worsening forecasts. The estimates in the annual February forecast — which updates the annual November forecast — show a $25 million rise in revenue and a drop of $184 million in projected expenditures due to larger federal Medicaid reimbursements and lower human services spending.

Most of the remaining deficit is due to lower than projected individual income tax collections. “While revenues are slightly better than expected, this forecast doesn’t significantly change the budget challenges,” said Tom Hanson, commissioner of the Office of Management and Budget.

The state’s consultant, Global Insight, is now predicting a slightly improved level of economic growth in the current budget of 1.8% compared to a previous projection of 1.4%. Employment and wage growth remains a concern with total wages paid in Minnesota not expected to return to pre-recession levels until late 2011.

The state next year must craft a new two-year budget with a $5.8 billion deficit looming. The figure assumes that spending unallotments made by Gov. Tim Pawlenty to close a gap in the $57 billion budget approved by the Legislature last year are not continued in the next spending plan. The new number represents a $363 million increase over the November forecast.

The Republican governor last month proposed closing the then-$1.2 billion deficit through spending cuts and increased federal Medicaid funds. The Democrat-controlled Legislature would like to offset some cuts with revenue increases.

The two sides also clashed over the capital budget. Pawlenty proposed a $700 million bonding bill while Democrats pushed through a $1 billion program.

The Legislature did not send the bill to Pawlenty due to his veto threats and both sides have been meeting to work out a compromise.

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Minnesota
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