Minnesota Management and Budget released this morning its February Economic Forecast, which showed an overall $1 billion improvement in the state's $6.2 billion deficit for fiscal years 2012-2013. Due to a $176 million reduction in projected expenditures and a $984 million increase in projected revenues, the current general fund deficit is a little over $5 billion. The majority of reductions are in the Health and Human Services budget, with the additional revenues coming from increases in income and sales taxes. Cuts in federal payroll taxes, as well as a delay in capital gains taxes, also helped the economic outlook. The forecast also projects a $663 million balance for this fiscal year, up $200 million after Gov. Dayton opted in to the federal Medicaid program for poor, single adults. State economist Tom Stinson said despite the improvement, there is still a lot of economic uncertainty. National political events, federal budget action, employment growth and 2010 tax-year refunds and payments can all greatly alter the course of recovery.

Despite the $1 billion improvement, legislators still face the daunting task of dealing with the $5 billion deficit, estimated at approximately 13% of the state's general fund. With no savings or one-time federal money to rely on, they will be left to either cut more spending or raise additional revenue, which Republicans have consistently argued against. The race is on to balance the budget before the May 23 deadline for adjournment.

With a new forecast number, Gov. Dayton will release a supplemental budget in the next couple weeks likely aimed at softening the $200 million in cuts on nursing homes and home health care programs. His revised budget will eliminate his proposed income surcharge, making good on his promise to keep Minnesota's tax rate below the nation's highest. He will also restore funding for metro and rural transit, reinstate funding for fire safety training, increase the R&D credit to promote Minnesota's job growth and provide $5 million to the Department of Economic Development for the Minnesota Investment Fund. He will present his plans for his revised budget today, February 28, at 5 p.m. in the Governor's Reception Room. The Republicans will also begin to put together their budget in the next couple of weeks. Their self-imposed deadline to hear all finance bills is March 25.

For more in-depth information on the forecast, visit the Minnesota Management and Budget's Web site.

You can also read a summary of the press conference and forecast announcement at the Minneapolis StarTribune.