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State's fiscal gap smaller than feared, but tax battle looms just the same
Federal stimulus money will soften the recession's impact on Minnesota's coffers, but the fiscal hole will still be deep enough to spark a showdown over taxes at the Capitol. The state's numbers crunchers released their revised fiscal forecast Tuesday at the Capitol, projecting a $4.6 billion shortfall for the two-year budget cycle that begins July 1st. That's smaller than November's estimate of $4.8 billion, but only because of the infusion of cash from the federal stimulus package. Finance Commissioner Tom Hanson told reporters that, without the stimulus money, he would've forecast a gap of $6.3 billion for fiscal 2010-2011. The economic outlook, and actual conditions, has cut deeply into projected income and sales tax revenues. And state economist Tom Stinson doesn't like what he sees in the latest snapshot of Minnesota's economy. "It's probably going to be the longest and deepest recession since World War II," Stinson remarked, "We think it's going to be a relatively slow recovery; those jobs that have been lost aren't going to be fully recovered until 2012." Stinson predicts Minnesota's economy will shed another 65,000 jobs by 2012, in addition to the 55,000 that have been lost since the state's downturn began in December of 2007. Again, those numbers would be even worse without the 45,000 jobs the stimulus projects are expected to generate in Minnesota. By contrast, Stinson said the state normally grows 40,000 jobs every year on its own. "The 120,000 jobs we're expected to lose is roughly three years of normal growth in the state's economy." It's a double edged sword, because rising unemployment erodes payroll tax receipts at the same time consumers and businesses are spending less, which chips away at sales tax revenues. Tax scrap Lawmakers and Governor Pawlenty agree the one-time boost in federal aid is a temporary reprieve from the state's economic woes. "This situation is like having a broken leg and we are in the emergency room," Speaker of the House Margaret Kelliher told reporters, "We've been in a car crash, the economy is in rough, rough shape, and the help we've gotten from the federal government is like short-term pain medication." The Minneapolis Democrat pledged to deliver a balanced budget to Governor Pawlenty's desk by the end of the session. That budget fix may include tax hikes, but that's not the language DFL leaders are using at this stage in the game. "All options are on the table; that includes revenue," Rep. Kelliher said, "It will be a balanced budget for four years, which means it has to have its in-flows and out-flows balanced." Governor Tim Pawlenty will issue a revised budget plan based the new forecast, but he made it clear he won't solve the puzzle with new income taxes. "There is hardly any family, any business, anyone, anywhere that isn't being asked to tighten their belts," Pawlenty told reporters, relying on the rhetoric that has served him well in his public campaigns against taxes. "And government should do the same and we're going to insist on that," he said, "I'm going to insist on that so if they plan on raising taxes we're going to have a collision." Commissioner Hanson said he actually expects state government to reap as much as $4.5 billion from the federal stimulus bill, but for the purposes of this forecast Hanson includes only $2 billion in medical care aid. Another $2 billion goes to dedicated state spending, such as roads and bridges and clean water, so it's not available to balance the general fund budget.
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