What to watch for in Minn. budget forecast

Minnesota's budget debate kicks into a higher gear on Thursday when state finance officials set the parameters for a process that must conclude by mid-May.

A comprehensive look at state tax and spending patterns, known as a state economic forecast, will identify the expected shortfall that must be patched when lawmakers set the next two-year budget. Sure, the forecast could project a surplus, though virtually no one around the Capitol expects one.

The forecast is always filled with eye-glazing statistics, charts and government jargon. But its role as a roadmap cannot be understated. Here are some things to watch for.

GAIN NOW, TROUBLE LATER?

Before the Minnesota Legislature adopts a single budget bill, they could see one of their fiscal challenges mostly melt away. A short-term boost in tax collections would wipe out a chunk of the state's IOUs to school districts that piled up during prior budget fixes.

Here's how: When a forecast shows tax receipts higher than state expenses, by law the excess money is steered toward paying school aid dollars that had been deferred as the state limped along. The IOUs still top $1 billion.

Based on recent tax collection trends, there's a decent chance the forecast will show a surplus for the budget period that ends June 30.

But finance officials warn that the short-term gain may portend long-term pain. They suspect investors and top earners sped up their tax payments late last year to avoid new federal tax rates that kicked in Jan. 1. That means those tax dollars won't materialize this year, perhaps inflating the projected deficit for the upcoming budget.

NEXT STEPS

Gov. Mark Dayton assembled his two-year budget based on a prior forecast reflecting a $1.1 billion deficit. To plug that hole and pay for proposed new spending, Dayton has recommended an array of new taxes.

If the deficit shrinks, watch for Dayton to rejigger his tax plan. He has endured heavy criticism over a push to expand the sales tax to services and high-end clothing. A positive report would allow him to moderate that proposal, but the news would have to be shockingly good for him to retreat entirely on the expansion.

If the deficit remains above $1 billion - or worsens - it will increase pressure on lawmakers to move toward Dayton on taxes, deliver smaller aid boosts for public schools or scale back plans for property tax relief. So far, top Democratic legislators have applauded Dayton's budget goals without issuing a full-scale endorsement of his tax proposal.

EYES ON WASHINGTON

Once again, Minnesota's budget forecast comes with a big asterisk, courtesy of Washington.

The rolling standoffs between Democratic President Barack Obama and congressional Republicans have led to uncertainty in the state's budgeting, too. Across-the-board federal spending cuts and an upcoming fight over raising the debt ceiling have implications because both could affect an already shaky economic recovery.

Minnesota's forecast is based on economic growth projections. Economists fear that businesses will be reluctant to add workers or buy new equipment in a climate of uncertainty.

The forecast is expected to touch on how the Washington disputes would alter the budget conditions here.

VIKINGS STADIUM

After years of stadium subsidy fights at the Capitol, this was supposed to be the year of relative calm. But there is anxiety about whether the Vikings stadium financing plan is sound, an unease that could grow in this forecast.

In December, when state officials gave the first snapshot of the new gambling proceeds, they showed that the dollars were coming in much slower than anticipated. At that checkpoint, tax revenue from electronic gambling devices in bars and restaurants was expected to be at about $34 million but the actual haul was about $16.5 million. New games haven't spread as fast as regulators were hoping and a companion rollout of electronic bingo still hasn't occurred.

The expanded gambling is the main source for repaying debt on state's $348 million share of the nearly $1 billion stadium. Bonds for the stadium are due to go on sale this fall, with serious construction starting next February.

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