The February forecast showed some hints of sunshine for Minnesota’s budget troubles. The state’s projected deficit for the next two-year budget cycle fell to $5 billion, a dip of nearly $1.2 billion from the previous estimate.
Minnesota Management and Budget Commissioner Jim Schowalter characterized it as a “modest and helpful improvement” in the state’s revenue forecast. The rosier outlook was attributed to a slowly improving economy and the extension of federal tax cuts, particularly on capital gains. It includes $264 million in additional revenue for the current biennium and nearly $900 million in additional funds for the 2012-13 budget cycle.
“We’re anticipating that we will see improved revenue collections, but there’s still quite a few uncertainties that are part of this forecast,” said Schowalter at a Capitol press conference announcing the new figures. “There are still quite a few budget challenges ahead for the state.”
If the $1.4 billion accounting shift in K-12 education spending that was adopted in last year’s legislative session is extended — as widely anticipated –that leaves a $3.6 billion hole for Gov. Mark Dayton and the GOP-controlled Legislature to eliminate.
While the $5 billion budget deficit estimate is a stark improvement, it doesn’t entirely depict the state’s fiscal woes. That’s because changes to comply with federal tax laws — most notably the extension of the tax cuts enacted by President Bush in 2001 and 2003 — are expected to add roughly $300 million in costs to the state’s balance sheet.
State Economist Tom Stinson noted that job growth figures remained “disappointingly slow,” despite fat corporate profits and increases in productivity. “Everything’s there for it to occur,” said Stinson. “The question is who rings the bell?”
Dayton originally proposed eliminating the deficit in part by raising $3.3 billion in taxes on the state’s wealthiest 5 percent of residents. In response to the reduction in the budget shortfall, the first term DFLer announced that he’s dropping a proposed three percent surcharge on the state’s top income tax brackets, as well as eliminating $200 million in proposed cuts to health and human services. Republicans have pledged to solve the problem without any additional revenues.
The improvement in the deficit does little to eliminate the state’s chronic budget shortfalls going forward. Minnesota is projected to face a $4.4 billion deficit in the 2014-15 biennium.