Minnesota economy improves slowly, but balancing the budget still challenging

Minnesota's current budget picture is a bit brighter than three months ago, but the next budget could be the state's biggest-ever financial challenge.

Minnesota's current budget picture is a bit brighter than three months ago, but the next budget could be the state's biggest-ever financial challenge.

The current budget is $944 short, state officials announced Tuesday, but depending upon what legislators and the governor do in the next few months the budget that begins in mid-2011 could end up with an $8 billion hole. The best scenario for the 2011-12 budget is a $2.8 billion deficit.

In early December, those same state officials predicted a $1.2 billion budget in the current $31 billion, two-year budget. Slightly better revenues and less spending improved the picture.

Most of the $184 million lower spending came in health programs for the poor, about half of which was due to unanticipated federal money flowing to Minnesota. Tuesday's budget forecast also figured in $14 million less spending for public schools, largely due to declining enrollments.

While corporate taxes brought in $181 million more than expected, the first increase lately, individual income taxes now are expected to fall $874 million.


"The big story is what didn't happen..." State Economist Tom Stinson said. "It's pretty much the same forecast we did before."

Republican Gov. Tim Pawlenty said he was thankful for the slightly better forecast, but Democrats who control the Legislature used the news, especially that of the next budget, to beat up on Pawlenty.

"We are not out of the woods yet, not by a long shot," Pawlenty said.

Pawlenty said budget proposals he already has announced would cure the current budget problem, with the 2011-12 deficit shrinking to $2.8 billion under his plan. Officially, the next budget faces a $5.8 billion problem, but legislative decisions could boost it to $8 billion, State Budget Director Jim Showalter said.

Democrats credited federal money for making Pawlenty look better, along with the governor's proposals to delay school and other payments into future budgets.

"His legacy is one of kicking the can down the road," House Speaker Margaret Anderson Kelliher, DFL-Minneapolis, said.

Senate Majority Leader Larry Pogemiller, DFL-Minneapolis, said the next budget's problem is a major concern, and said Pawlenty is not paying attention to it.

"Is Minnesota better off as Tim Pawlenty leaves office?" he asked. "The answer is a resounding 'no.'"


Pogemiller said Democratic legislative leaders plan to pass a series of budget-cutting bills, beginning in the next two or three weeks. The first phase will include cuts to higher education, environment, state government, agriculture, veterans, public safety and courts programs. The second bill, which he hopes can pass later this month, would cut health-care spending, with the final budget-cutting bill dealing with local government aids and public school education.

Pawlenty and most Republicans say they want to balance the budget solely with cuts, refusing any talk of tax increases.

However, more than $400 million of Pawlenty's balanced-budget plan is based on new federal aid that has not passed Congress, and many think will not be approved soon. On Tuesday, he said he might have to rework his budget plan if Congress does not come through.

Pawlenty agreed to go along with Pogemiller's phased-in budget cuts, saying that he prefers seeing a comprehensive budget bill instead of one given him piecemeal.

"We will take budget cuts any way they want to dish them up," Pawlenty said.

In the meantime, talks continued Tuesday on two issues that have resulted in partisan impasses in recent days: public works funding and General Assistance Medical Care for the poor.

Pawlenty refused an invitation to appear at a legislative public works meeting (he has not testified to a committee since he took office in 2003), but he encouraged chief legislative negotiators to continue working with his office.

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