Minnesota budget deficit lower than expected

ST. PAUL -- Talk of tax increases continues even as economists anticipate a smaller state budget deficit.

"Tax reform is important for Minnesota's future," said Senate Majority Leader Tom Bakk, DFL-Cook. "I don't think this will even slow that down."

Bakk's comments came shortly after Minnesota Management and Budget reported Thursday the state will face a $627 million shortfall in the next two years, down from $1.1 billion predicted in late 2012.

The state also has a surplus of $295 million for this year, most of which will go to repay money the state borrowed from public schools.

Democratic Gov. Mark Dayton and lawmakers will use Thursday's budget forecast to set the state budget during the final three months of the legislative session.

"The forecast really sets the table for where the issues are," Commissioner Jim Schowalter of Minnesota Management and Budget said.

House Speaker Paul Thissen, DFL-Minneapolis, said the forecast is positive, but there is work to be done.

"We still have a deficit," he said. "We still have a big chunk to deal with just to get back to zero."

Republicans argued the lower deficit means Dayton should rethink plans to increase taxes.

"If Gov. Dayton and DFL legislators are looking for a reason to raise taxes, they won't find one in this budget forecast," said House Minority Leader Kurt Daudt, R-Crown.

Dayton suggested the better outlook could lead to tax cuts, such as an increased renters' credit. He did not say he will change proposals to raise income taxes on the richest Minnesotans or sales tax changes. The income tax increase is expected to bring in an extra $1.1 billion and sales tax changes would result in a $2 billion net increase in revenue.

The governor's original budget proposal would spend $38 billion over the next two years. He said he will make more concrete decisions about his budget in the coming days and release an updated plan the week of March 11.

The forecast Thursday included about $297 million more than previously expected from income taxes.

Daudt said that is evidence the state's economy is improving.

"You don't need to raise the rate to raise revenue," he said. "You need to get more people back to work."

Sen. Dave Thompson, R-Lakeville, said Republican policies of not raising taxes and "restraining the size of government" have contributed to the better outlook.

"I'm hoping the governor adjusts his path," he said, adding tax increases are not only unnecessary but "damaging."

Dayton said the forecast was good news for Minnesota and a step in the right direction, but "it is not progress anyone is satisfied with."

Schowalter said the economy is being hurt, in part, because federal budget issues remain unresolved. The economy is "making steady progress, but not nearly enough," he said.

"We have a new forecast, but a relatively old story," Schowalter said.

Thissen said he hopes lawmakers can get out of the cycle of deficits.

"We also need to raise new revenue if we want to invest in the things that will improve the quality of life for Minnesota families: education, infrastructure and property tax relief," Bakk said.

State Economist Tom Stinson downplayed the economic impact of massive federal budget cuts due to begin today, but said it could slow state economic growth.

"There's more going on than just Minnesota policies," Stinson said.

A state 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 allow a shutdown.

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

"Over the coming days and weeks, budget discussions will pick up and the task of improving our education system and future work force will continue," said Rep. Paul Marquart, DFL-Dilworth. "We need to think big again and go in a new direction that puts the middle class first."

"Today's forecast is good news, but our state is still not on stable financial footing," said Rep. Mary Sawatzky,

DFL-Willmar. "Minnesotans deserve an honest budget balanced without gimmicks that funds our priorities and lays the foundation for a stronger economy, a stronger middle class and a stronger future."

"The improved forecast is definitely better than the alternative," said Rep. Roger Erickson, DFL-Baudette. "But we can't let this small improvement cover up the fact that we're still faced with a $600 million budget deficit. The only way we can move forward from this past decade of budget deficits is to help make a fair tax system that lets us invest in things like education, property tax relief and job creation."

"I'm pleased that our deficit is shrinking, but it's still another in our decade of deficits," said Rep. John Ward, DFL-Baxter. "Minnesotans deserve a budget that is balanced honestly without gimmicks, one that funds the things we value as Minnesotans and keeps us economically competitive."

"We have less of a mess to clean up, but a mess nonetheless," said Rep. Joe Radinovich, DFL-Crosby. "We need to close this deficit and begin re-investing in Minnesota's future."

"Today's forecast numbers are encouraging, but we must remember the need for a sustainable and honest solution," said Sen. Roger Reinert, DFL-Duluth. "With these numbers in hand, the real budget work begins."

Minnesota budget by the numbers