State officials announced that the nation’s economic downturn has “body-slammed” the state budget, leaving lawmakers and Gov. Tim Pawlenty stuck with a nearly $4.8 billion deficit for the 2010-11 biennium.
Minnesota Management and Budget Commissioner Tom Hanson didn’t mince words in presenting the state’s grim November Forecast, which predicts an additional $426 million deficit for the remainder of the current biennium ending June 30, 2009.
“This presents a $5.273 billion dollar challenge over the next three years,” Hanson said, summarizing the difficult situation that state leaders will have to negotiate when the upcoming legislative session begins Jan. 6.
Pawlenty and legislative leaders reacted swiftly to the announcement, pledging not only budget cuts but also major changes to the state’s budgeting process.
“This is going to be a time of dramatic change and dramatic reform,” Pawlenty said, adding that the deficit will provide an unprecedented opportunity to curb spending increases and find new efficiencies in the way state services are delivered. He also stated that tax or fee increases to make up for the predicted $3.3 billion revenue shortfall are off the table.
House Speaker Margaret Anderson Kelliher (DFL-Mpls) echoed a similar note of optimism, saying that Minnesotans could expect “a lot of innovation in the Legislature about how we budget this time”; however, she and House Majority Leader Tony Sertich (DFL-Chisholm) did not reject the possibility of finding ways to increase revenues.
“Nothing is off the table,” Sertich said.
DFL leaders also emphasized the importance of creating jobs in the state. Senate Majority Leader Larry Pogemiller (DFL-Mpls), who pledged to examine every current spending item in the state budget, indirectly criticized the Pawlenty administration’s economic development agenda, stating that “We need a new set of leadership in the job development area.”
Meanwhile, Republican legislative leaders urged the DFL majority to present its budget solutions early during the session so that budget negations can begin as soon as possible.
“We need to front-load the process — get the cards on the table,” said House Minority Leader Marty Seifert (R-Marshall), who, like the governor, rejected the necessity of any tax or fee increases.
“Our whole philosophy has been ‘live within your means,’” Seifert said. He urged Minnesotans to “embrace the challenge of the deficit,” and said his caucus stood ready to work with Democrats in crafting solutions.
State Economist Tom Stinson said the current recession is expected to last about 24 months, and the resulting economic conditions could be the worst the country has seen since World War II.
“We’re going to lose a lot of jobs,” said Stinson, who also warned that the effects of the faltering economy “will be real, significant, and will affect most people.”
While the state has weathered several economic downturns, the most recent in 2001, Stinson said this recession will be different. He cited the dismal housing sector, the “massive loss of wealth” from the declining stock market and consumer lack of confidence.
With few sectors of the state’s economy doing well, he said the state’s unemployment numbers will most likely climb as the recession deepens. The state has already experienced the loss of about 20,000 jobs and “from now to the end 2009, the state could lose about 58,000 more,” Stinson said.
This is compounded by the projected loss of revenue to the state. Revenue projections show a downturn in collection of income taxes (10.1 percent), sales taxes (8.7 percent), corporate taxes (31.3 percent), and motor vehicle taxes by 9 percent.
Stinson said the state is in uncharted territory, and wouldn’t rule out an even bleaker outlook when the February Forecast is issued.