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May 2008

State Roundups
Minnesota

More salt for a struggling economy

Faced with a slumping economy, the state of Minnesota is now facing the public sector equivalent: a $935 million budget deficit. In February of last year, the state was looking at a $1 billion surplus.

Tax revenues are projected to inch up just $300 million (about 1 percent) over the 2006–07 biennium thanks to ample evidence of a slow economy. Along with a downtrodden housing market, the secretary of state’s office reported that new business registrations were down 2 percent last year, the first decline in nine years. Loan default filings in 2007 rose two-thirds over the previous year.

But a little-noticed wrinkle in the deficit problem comes from the spending side, which is forecast to jump more than $3 billion (about 10 percent) over the last biennium. As of late March, Gov. Tim Pawlenty had proposed spending cuts of about $340 million, along with taking $250 million from both the budget fund and a dedicated health care access fund. Even if legislators agree, they’ve potentially got bigger problems: State forecasters are predicting the deficit could balloon to $2 billion in a few years.

A pink slip for JOBZ?

On the heels of a critical report from the state legislative auditor, some legislators are reconsidering their support for a popular economic development program in rural and distressed areas.

The Job Opportunity Building Zones program offers a variety of tax breaks to businesses willing to relocate or expand existing operations in a broad swath of greater Minnesota. In February, the state auditor accused the JOBZ program of overstating benefits, failing to target the neediest areas and lacking overall focus and accountability.

From 2004 to 2006, about 350 businesses received various tax breaks totaling $46 million. The auditor’s report, however, suggested that a majority of businesses would have undertaken at least some investment without the tax breaks.

Then in late March, in an effort to help plug a state budget deficit (see above), the leader of the House tax committee proposed a measure to eliminate all state aid to businesses, including the elimination of JOBZ. That appears unlikely, according to early reports from other legislators as well as the governor’s office, but there does appear to be support for revisiting and possibly revamping the program.

—Ronald A. Wirtz