CHICAGO — Minnesota is facing a $1.2 billion deficit through 2011 and could see a record $5.4 billion shortfall by 2013, according to the latest state revenue projections released yesterday.
State economists blamed the national recession and unemployment for a decline in revenue that is expected to total $1.15 billion by 2011.
About 70%, or $827 million, of the revenue decline comes from a drop in income tax collections due to a larger-than-anticipated decline in wages, state officials said. It’s the first time in 40 years that Minnesota income tax receipts have declined.
Yesterday’s annual fall forecast provides the first comprehensive glimpse at the outlook for 2010-2011.
The projected deficit stands to affect the state’s future borrowing plans. Minnesota traditionally limits its debt service to no more than 3% of its non-dedicated general fund revenues. It is on track to exceed that guideline through 2013 even without future borrowing.
Since last year, the state has violated the limit — and is now considering pushing it up.
“We have been over our self-imposed 3% guideline ever since the revenues started plummeting, which commenced a year ago in November 2008,” said Kathy Kardell, assistant commissioner for treasury. The state has roughly $2.3 billion of bonds that have been authorized but not yet issued. “Because we have the authorized but unissued bonds, even if we zero it out during the forecast period, we would still exceed the 3%,” she said.
The government is considering raising the bond cap as well as making other changes, according to Kardell said.
“We’ve been trying to look at the feasibility of doing some new guidelines that would modernize the very old guidelines, which go back for a couple decades,” she said.
Revenues for the 2010-2011 period are expected to total just under $30 billion. Officials expect to collect $1.15 billion, or 3.7%, less in revenue than earlier projections that were released in March. Total general fund spending is projected to decrease slightly, down $44 million to total $31.3 billion, according to projections. The biggest decline will come from debt-service costs, which will be reduced by $123 million due to a recent refinancing.
The $5.4 billion structural deficit through 2013 reflects a $1 billion increase from earlier projections, which had estimated it to be in the $4.5 billion range.
In a statement issued after the forecast, Gov. Tim Pawlenty ordered state agencies to put a hold on spending and asked lawmakers to begin holding budget cut hearings before the start of the next legislative session in February.
“Once again, we find ourselves with a shortfall that reflects spending decisions that are locked in while revenues are subject to change,” Pawlenty said. “That uncertainty needs to be reduced. Limiting state government growth through a constitutional amendment would help rein in spending and bring greater certainty to the budgeting process.”
Minnesota’s $4.3 billion of general obligation bonds are rated AAA with a negative outlook by Fitch Ratings and AAA with a stable outlook by Standard & Poor’s. Moody’s Investors Service rates the state Aa1 with a stable outlook.