Minn. officials brace for bad-news budget forecast

AP News
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Posted: Dec 01, 2009 1:59 PM

Despite billions of dollars in recent cost-cutting, Minnesota's budget keeps springing leaks.

State finance officials will detail on Wednesday how much money trouble lies ahead, by releasing a comprehensive economic forecast. The previous four such outlooks have shown deficits, and state leaders expect the grim pattern to continue.

Here are some questions and answers about the forecast.

Q: Why does this report matter?

A: It's one of two done each year that analyze tax collections and spending patterns for the short and long term. While they mainly offer projections, lawmakers rely on the estimates to set the state budget. In good times, expected surpluses often lead to tax cuts or spending increases for favored programs. In bad times, forecast deficits have led to higher fees, reined-in spending and accounting maneuvers.

Q: Are there clues about what Wednesday's report will show?

A: Tax updates since the last full forecast in March have shown actual state revenue lagging previous estimates by $240 million. The quarterly updates have also indicated that the economy is recovering slowly and the job picture will take many months to improve. On the spending side of the ledger, economic downturns can put more pressure on the MinnesotaCare health insurance program, food assistance grants and other safety-net programs that are among the fastest-growing in the state budget already.

Q: Didn't Gov. Tim Pawlenty and the Legislature address a substantial deficit last spring?

A: Sort of. They relied on federal stimulus dollars and spending cuts _ allowances for everything from college to welfare to agriculture programs were scaled back _ to fix most of a $6 billion-plus deficit. Pawlenty invoked his executive powers to cancel or delay other promised payments to get the rest of the way. Two lawsuits challenging Pawlenty's use of that authority are pending.

Q: Could Pawlenty tackle the new problem on his own?

A: A forecast showing a deficit would give Pawlenty latitude to do more solo cutting. But he has said he would prefer to involve the Legislature in the task. Lawmakers don't return to the Capitol until February. If Pawlenty goes it alone, aid to local governments is considered most at risk.

Q. 2010 is an election year. How will that affect the way the deficit is handled?

A: Eight legislators, including the House speaker, are running for governor and all 201 legislative seats will be on November's ballot. Lawmakers tend to act cautiously in election years. So the budget-fix bark might be bigger than the bite _ with cosmetic, temporary fixes more likely than drastic, longer-term solutions. Pawlenty and the Democratic-led Legislature have had repeated clashes over tax-increase proposals, with the GOP governor reliably turning them down.

Q: Is action required?

A: Technically, no. The Minnesota Constitution merely requires the state to have its books balanced at the end of the budget cycle, which in this case is a two-year period that runs through June 30, 2011. Lawmakers could push some of the problem off until their 2011 session, but a solution only becomes more difficult as the time is compressed.

Q: How does this relate to the recent news that the state might have to borrow to pay its bills?

A: It has no direct bearing. Minnesota might engage in short-term borrowing for the first time in a quarter century because the money it collects and owes don't always line up from month to month. The state has a cash flow account officials fear will be tapped out, so they might take out loans to get them through lean months early next year.

Q: Is this forecast the final word?

A: No. A new forecast will be produced by early March, about a month after the Legislature convenes its 2010 session. The report will shape early proposals, such as a major construction finance plan usually approved in even-numbered years. But if Pawlenty doesn't make spending cuts his own, expect lawmakers to wait until after the next report to take decisive action.