Budget forecast puts squeeze on spending plans

Finance officials say the state budget surplus stands at $2.1 billion through 2009. Half of that is excess revenue left over from the current budget. The other half is projected to come in over the next two years. The figure now means that lawmakers know how much money they have to work with as they craft their two-year budget plan.

The good news is the numbers haven't declined since November. The bad news is that the appetite for spending on health care, education and other programs is still quite strong.

State Finance Commissioner Tom Hanson warned lawmakers to not get too aggressive in their spending. During the 1990s the economy was so strong it produced a series of budget surpluses. Hanson says the economy isn't as robust now.

"I don't think we are at a stage in that economy where that is going to happen again, so we are going to have to be careful in how we budget," he said.

The forecast follows a number of weak U.S. economic indicators. State Economist Tom Stinson says the federal government just reported the U.S. economy grew at only 2.2 percent in the fourth quarter; that's down from an earlier estimate of 3.5 percent.

Stinson also says fewer people are building homes in Minnesota. That means fewer construction, real estate and timber industry jobs.

"Minnesota housing permits have fallen extremely rapidly," Stinson said. "U.S. housing outlook has fallen as well. The real question and the real uncerntainty that we see in the forecast at least in the short term is how quickly Minnesota's housing industry begins to recover."

Gov. Pawlenty said the latest findings mean state lawmakers should use fiscal restraint as they consider their budget proposals. Pawlenty said he would abide by a state law requiring him to send a tax rebate plan to lawmakers, but he was tepid in his support for the idea. He also repeated his opposition to any new tax increases.

"The needs are always greater than the resources so we have to live within our means just like families across Minnesota have to do. So that's what I'm going to insist on," Pawlenty said.

Pawlenty's two-year budget proposal is $34.4 billion over the next two years, which amounts to a 9-percent increase. The governor says that should be enough and DFLers will have to make some tough budget choices.

"The budget forecast hasn't changed and neither have our priorities," countered DFL House Speaker Margaret Kelliher.

Kelliher says her caucus is still committed to funding all-day kindergarten, property tax relief and greater access to health care. She says the House budget will pay for the additional programs by closing a tax loophole for foreign operating corporations, increased tax collections and by cutting some of the programs in the governor's budget.

"We will make sure that the burden will not fall heavier on middle-class Minnesotans," she said.

House DFLers didn't specify the cuts except to say the state didn't need as many assistant commissioners.

Senate DFLers say they intend to focus a large part of the available surplus on filling the gap in special education funding.

Sen. Tarryl Clark, DFL-St. Cloud, says directing more money to federally-required special education programs will free up money for other education priorities. She also said her caucus is focused on property tax relief, greater health insurance coverage and more money for early childhood education.

Clark wouldn't say if they were considering a tax increase but added that "if Minnesotans are serious about the things that they talked about our state this summer and fall, it's going to be hard to do that when we have problems like this and we don't have $2 billion in extra money."

Clark said they don't have the extra money because of inflation. She says the cost of inflation wipes out half of the surplus. She said failing to recognize inflation is "dishonest budgeting."

Sen. David Hann, R-Eden Prairie, scoffed at those comments.

"We would just challenge the people of Minnesota to look at the numbers and they can decide if there's a surplus or not. We were here four years ago and we did not have a surplus. We all know what that feels like. This is a much different environment," Hann said.

Legislative leaders in both parties say they agree on one thing: They want to put more money in the state's budget reserve to prepare for a future economic downturn.

Gallery

Fullscreen SlideshowPrevious Slide

1 of 1

Next Slide