The January economic update from Minnesota Management & Budget (formerly the Department of Finance) has revealed that tax collections in November and December of 2008 were below forecasted amounts, adding another $131 million to the state’s projected budget deficit for the current FY 2008-09 biennium.
In December, Governor Pawlenty drained the state’s budget reserve and made deep budget cuts (largely in the form of aid reductions to local governments) to address a $426 million deficit projected in the November forecast. Within a month of these actions, state revenues fell another $131 million. By state law, the Governor and Legislature must balance Minnesota’s budget before the end of the FY 2008-09 biennium on June 30.
November and December corporate tax collections were $57 million (42 percent) below forecast levels. Sales and individual income tax collections were also significantly below projections. The chart below shows the distribution of the $131 negative variance by source.
In addition to the revenue shortfall within the current biennium, state policymakers must address the $5.5 billion deficit projected for the next biennium. Nearly the entire projected budget deficit is due to faltering revenues, as opposed to growing expenditures. Despite claims to the contrary from Governor Pawlenty, Minnesota has a revenue problem.