Minnesota budget deficit pegged at $1.1B

ST. PAUL — Minnesota’s budget will face a $1.1 billion shortfall, state officials announced this morning.

Details were to be released later, but Minnesota Management and Budget officials said that even with the projected budget deficit for the next two years, “current conditions will allow the state to reduce the K-12 education shift by $1.3 billion of the $2.4 billion outstanding but that improvement does not continue into next budget period.”

Legislators and governors in recent years have delayed payments to schools to help solve state budget problems.

Under current law, surplus money in the two-year budget that ends June 30 must be used to repay schools. However, legislators could change that when they meet in session beginning Jan. 8.

Today's deficit forecast adds to a cloud of uncertainty hanging over the state budget because of action, or inaction, on federal budget issues.

With more than $500 billion in federal tax increases beginning Jan. 1 unless Congress and President Barack Obama act, the national economy could face a recession.

“So you are going to have to do something to stop the tax increases from coming about,” Minnesota State Economist Tom Stinson said in an earlier interview. “You can’t just say, ‘We won’t do anything and it will go way.’ If you don’t do anything you are over the cliff.”

The impact could be gradual, Stinson said, but Americans would begin noticing the higher taxes in their first 2013 paychecks. If nothing is done, he said, consumers gradually will stop spending and businesses will hire fewer people.

“You get started on that vicious spiral,” he said.

Gov. Mark Dayton last month said that while he must submit a budget proposal in January, he would be forced to revise it if the federal budget woes generally known as the “fiscal cliff” occur.

A new budget forecast is due out in late February or early March, which probably will mean that Dayton then would revise his budget. The 2013 legislative session begins Jan. 8, and relatively little budget-related work is expected in the first two months while lawmakers await the later budget report.

The budget forecast provides figures for state officials to craft a budget. The current two-year state budget spends $34 billion in state taxes and fees.

A budget must be in place by July 1 or there could be a government shutdown like in 2011.

Minutes after the deficit was announced, the state’s largest government employee union asked for higher taxes.

“If Republicans are looking for massive spending cuts, they’ve already done that with a decade of disinvestment,” Eliot Seide, director of AFSCME Council 5, said. “We need $6 billion to dig ourselves out of the hole and pay for the things Minnesotans care about — brainpower schools, middle-class jobs, safe transportation and property-tax relief.”

To fund state spending, taxes will be debated.

There is widespread expectation that higher taxes, at least on the state’s richest residents, will be favored by the new Democratic-Farmer-Labor Party legislative majority. Democratic Gov. Mark Dayton has been a strong advocate of that, and the 2013 Legislature will mark the first time in two decades that a governor of his party has had a DFL House and Senate.

While twice annual budget forecasts are reported as showing surpluses or deficits, the Minnesota Constitution does not allow a deficit. More accurately, the forecast shows what would happen to the state budget if the governor and lawmakers made no change from current law.

A budget surplus could have allowed more spending on other programs without raising taxes.

A deficit must be fixed by the state raising more revenue or cutting spending. Revenues may mean higher tax rates or eliminating what politicians call “loopholes,” those tax cuts and credits politicians often approve to help certain classes of businesses and citizens.

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