By Dan Haugen and Whitney Stewart
Dec. 2, 2009
The state's budget office today released its annual fall economic forecast, which predicts the state is on pace for a $1.2 billion deficit at the end of the current two-year budget cycle, which ends June 30, 2011. About 70 percent of the shortfall is due to lower than expected income tax revenues, which plummeted as employers in the state laid off workers, cut hours and reduced pay to their employees.
Now comes the question of what to do about the projected deficit. Gov. Tim Pawlenty said the situation is urgent enough that he may use unallotment this month to cut local governments aid, while others say the numbers could easily change before the budget cycle ends and that we have time to wait and see. The following is a summary of some of the solutions being proposed by politicians and others. We'll be updating throughout the day:
Slash funding for local governments
In a press release today, Gov. Tim Pawlenty called the projected deficit "significant, but solvable." He said state government needs to live within its means and hold the line on taxes. Legislative leaders should start committee hearings immediately, he said, but because of the timing of payments he may find it necessary to unallot a portion of local government aid. The governor said he has directed his cabinet to begin working with legislators to discuss that potential unallotment and other solutions. He announced a hold on spending at state government agencies and ordered them to seek cuts totalling 3 percent of unspent operating funds for the current budget period. Pawlenty also plugged his proposed constitutional amendment, which would cap state spending to actual revenue in the previous budget cycle. "Limiting state government growth through a constitutional amendment would help rein in spending and bring greater certainty to the budgeting process.” (Source: Press Release)
Raise income taxes, expanding sales taxes
Dane Smith, president of the progressive think tank Growth & Justice, said any long-term solution is going to have to involve raising revenue. Growth & Justice would advocate for restoring income tax rates to what they were during the 1990s, and possibly broadening state's sales tax. The goal should be to raise revenue in ways that don't impact the middle class, which has already burdened by rising property taxes, Smith said. "The income tax is a no brainer." The percentage of Minnesotans income going toward state and local government has actually fallen in the past decade, he said, from about 17 cents per dollar in the 1990s to about 15 cents per dollar today. (Source: BringMeTheNews interview)
Tax the rich
Former U.S. Sen. Mark Dayton, a 2010 gubernatorial candidate, called on Pawlenty to do "what is necessary and right: raise taxes on the rich." (Source: Mark Dayton for A Better Minnesota) That idea is seconded by Nan Madden, director of the Minnesota Budget Project. The state is about out of short-term solutions, Madden said. A tax on the state's top earners would minimize the amount of budget cuts necessary, she said, and most couples making over $250,000 would not significantly change their spending habits due to a tax increase. (Source: BringMeTheNews interview)
A "more holistic approach"
House Speaker Margaret Anderson Kelliher, a DFL candidate for governor, told the Star Tribune "it's important to have balance in the way we solve these deficits." She proposed a "more holistic approach," combining spending cuts with tax increase. She said it's also important to make sure the state is doing everything it can to promote job growth. (Source: Star Tribune)
Call a special session
State Rep. Paul Thissen (also a 2010 DFL gubernatorial candidate) said in a statement on his website, "If I were governor, I would call the legislature into special session immediately because the longer we wait, the worse the pain will be for Minnesota families.” (Source: Paul Thissen for Governor)
Grow the green economy
DFL candidate for governor Matt Entenza said the state won't be able to fix its budget problem until it fixes its economy problem. "We can't tax our way out of this nor cut our way out of it; we must grow our way out of it," Entenza said. He said he believes Minnesota can be the Silicon Valley of clean energy, and that the state should be installing and manufacturing wind turbines, encouraging energy conservation and taking the lead in developing the next generation of biomass. Doing this would create thousands of new jobs and economic opportunity across the state, he said. (Source: Matt Entenza for Governor)
A wait-and-see approach
Hamline University law professor David Schultz said there are enough variables and time before the end of the budget cycle that the state doesn't need to take immediate action. There's still uncertainty about when and how fast the economy will recover, he said. Meanwhile, if Congress decides to pass a second federal stimulus package, which there's talk of in Washington, the boost from that could be enough to wipe out the state's projected deficit. "This forecast could be absolutely meaningless in three to four months," Schultz said. "We have plenty of time to correct the problems. We have plenty of time for the Legislature to act, plenty of time for the economy to turn around. A lot of things can happen. I would say [Wednesday's] fiscal forecast ought to really be a curious footnote of where we are, but nothing that demands the governor to take any emergency action, because we're not facing an emergency." (Source: BringMeTheNews interview)
