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Cuts on deck, budget in the hole

Minnesota State Roundup

March 1, 2009

Cuts on deck, budget in the hole
Cuts on deck, budget in the hole | fedgazette March 2009 | Federal Reserve Bank of Minneapolis

It might have been the dead of winter, but in January, Gov. Tim Pawlenty and state lawmakers started rolling up their collective shirt sleeves.

That's because the state faces a budget deficit that is expected to reach about $6 billion. The state's economy has been in a tailspin. In December alone, the state lost almost 12,000 jobs.

As a result, tax revenue has stagnated, while expenditures remained apace. For example, spending for public health care programs is slated to increase by 8.5 percent per year over the next couple of decades, according to a state tax commission. Even if state lawmakers manage to wrestle the current deficit into submission, they face an ongoing structural imbalance of between $1 billion and $2 billion in future budgets. The state is expecting up to $2.8 billion from the federal stimulus package that can go to the state's general fund.

Pawlenty offered an opening salvo on closing the deficit. His proposal had some of everything, including a wage freeze for state employees, program cuts, some tax increases and—surprising to some—significant tax cuts for business. The centerpiece was the cutting of the state business tax rate in half over the next six years in an effort to make business expansion—with related job and income generation—more attractive to firms.

Ronald A. Wirtz