It's official: The country is in a recession and Minnesota is facing its largest budget deficit ever. Minnesota has joined the ranks of 40 other states facing significant budget deficits. In a press conference Thursday morning, Minnesota Management and Budget released its November forecast asserting that the state faces a current budget deficit of $426 million for the remainder of this biennium and a $4.847 billion shortfall in the 2010-2011 biennium, not including inflation. That is a $5.3 billion total shortfall between now and June 2011. The budget gap represents almost 14% of the state's total $38 billion budget.
In what could be the "worst economy in 25 years," State Economist Tom Stinson predicted it would be "similar to that of the worst recession since World War II," referring to a downturn in the 1980s. He also warned that the February forecast could be much worse and that the state would not experience positive job growth or see a turnaround for at least two more years. Minnesota is expected to lose a total of 77,000 jobs before the end of the recession. Some of the driving factors are: a sustained decline in housing prices that hasn't been seen since the Depression; low-performing construction, manufacturing, and retail and trade industries; and a decline in consumption across multiple quarters. The recession is also predicted to take longer to recover as more people approaching retirement opt to save rather than spend any new earnings.
Legislators will have difficult decisions to make during the 2009 legislative session. At the end of the 2008 legislative session, lawmakers expected a $946 million budget shortfall for the next biennium, a far cry from the $4.8 billion shortfall they are now facing. Gov. Tim Pawlenty and state legislators will have to decide how to fill the budget gap. Gov. Pawlenty, opposed to any new tax increases, will be looking at utilizing special fund and budget reserves, additional spending cuts, and "non-tax" revenue. Senate Majority Leader Larry Pogemiller, Speaker of the House Margaret Anderson Kelliher, and Gov. Pawlenty are scheduled to begin their discussions on how to solve the short-term $426 million deficit on Friday morning.
Sen. Tom Bakk (DFL-Cook), Chair of the Senate Tax Committee, spoke before a group of business leaders Thursday afternoon about the budget's impact on Minnesota's tax system. "Minnesota is facing challenging times, but not unique ones. We are going to have to be in this together. I hope that we can rise above the partisan politics and the competing interests to really solve this problem." The Senate Tax Committee will be looking at what is currently being taxed and what isn't. "Our de facto position should not be to raise taxes. We need to take a look at the broader picture. Every spending decision in every finance division needs to be reviewed." Sen. Bakk also stressed the importance of creating and maintaining an adequate workforce. "We need to have a real economic stimulus plan. Minnesota will be a stronger state for it."
You can view a complete report of the November forecast on Minnesota Management and Budget's Web site at http://www.mmb.state.mn.us/
Gov. Pawlenty: "We need to live within our means"
Gov. Pawlenty and legislative leaders were quick to respond to the news. Both acknowledged the challenges and difficult work that lay ahead and the need to foster job growth and development, while at the same time expressing optimism that a solution could be reached.
Gov. Pawlenty reiterated his dedication to not raising taxes and to getting state government to "live within our means." He called for greater innovation and structural reforms that would allow government to run more efficiently and he claimed he would propose revenue-generating ideas that did not involve tax increases. While the governor did not place "untouchable" status on any particular budget item, he did proclaim his top priorities to be public safety, our military and veteran spending, and K-12 education funding. On the other side, the Governor named health care as one of the first areas he would look at for reforms. According to Commissioner of Management and Budget Tom Hanson, "a large portion of the 6.1% increase in forecasted spending during the two-year period stems from a spike in spending on human services." The governor will be announcing his budget proposal on January 27, 2009.
For more information on Gov. Pawlenty's response to the budget crisis, please see http://www.governor.state.mn.us/mediacenter/pressreleases/PROD009220.html
DFL Leaders' Response: "We will weather this together"
The leadership of the Minnesota Senate and the House of Representatives called for a budget solution that would balance the state's ledger while still making investments to keep the state moving forward. Although they acknowledged that cuts would have to be made, House Speaker Kelliher stated that the state's budget "cannot simply be a math problem"; otherwise, opportunities could be lost. Legislators also echoed Tom Stinson's call for more work in the area of job creation, especially green, high-tech jobs.
On the topic of a possible federal stimulus package to the states, Gov. Pawlenty indicated he would not be opposed to Minnesota receiving such a contribution, provided that those additional funds did not come with excessive pre-conditions or requirements on how the money should be spent. Senate Majority Leader Pogemiller voiced hope that the Governor would not walk away from such a potentially valuable tool to help deal with the current situation.
With a record deficit and several differing theories on how best to solve the problem, the 2009 legislative session promises to be both eventful and long.
For media coverage on the projected deficit go to http://www.twincities.com/ci_11137318 or http://www.startribune.com/politics/state/35539039.html?elr=KArksLckD8EQDUoaEyqyP4O:DW3ckUiD3aPc:_Yyc:aULPQL7PQLanchO7DiUs