More salt for a struggling economy

Minnesota State Roundup

Published May 1, 2008  | May 2008 issue

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.

Ronald A. Wirtz