Minnesota's projected budget deficit shrinks to $627 million

ST. PAUL — Minnesota's finance officials announced Thursday that a projected budget deficit has shrunk to $627 million, which is down more than 40 percent from the previous estimate.

Legislators and Gov. Mark Dayton will use this information to set the state’s budget over the next three months. Lawmakers have discussed the budget, but have been waiting for the updated number to dig into debate.

The updated economic forecast released by the Office of Management and Budget sets the tone for legislative debate over a two-year budget that starts July 1 and runs through June 2015.

The previous forecast, released in December, showed a $1.1 billion deficit, and that's what Gov. Mark Dayton relied upon to build his budget. He will release a supplemental budget in March to account for the changed projection.

State economists had said in December that the February forecast would be more stable because federal issues would be clearer. But the state could be affected by automatic federal budget cuts set to begin Friday if President Obama and Congress do not come to an agreement.

The better news could prompt Dayton to scale back his proposed tax increases.

A new projection for the budget year that closes this June shows a surplus of $295 million. Almost all of it is required to be used to pay IOUs to Minnesota schools, reducing a backlog in deferred payments to $801 million.

Minnesota has lurched from deficit to deficit over the past decade, with only a few years above water. And lawmakers have resorted to temporary fixes to get by. They have delayed school aid payments, borrowed against a tobacco lawsuit settlement and plugged in one-time federal stimulus dollars for programs that require ongoing spending.

Dayton tried a new tack this year with a proposal that raises billions of dollars in new taxes, which he argues would add stability to the budget. But it has stirred a firestorm of criticism, largely from business leaders who argue it would make the state less competitive. A stream of backers and opponents to the Dayton plan paraded before the House Tax Committee on Wednesday night to weigh in on the debate.

A budget must be set by July 1 to avoid a state government shutdown. Democrats, who hold the majority in the House and Senate, have said they will not let that happen.

The state technically is not allowed to have a deficit, so would have to offset that by raising taxes, cutting spending or a combination.

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