Minnesota is on a fast track to a multi-billion dollar deficit if changes aren’t made to bridge the state’s income and spending gap, according to the latest budget projections.
According to a new report released Wednesday by the state budget office, Minnesota faces a $1.2 billion deficit by the end of the current biennium in 2011 — a number that could balloon to $5.4 billion in 2012-2013.
High unemployment rates are mostly to blame for what Minnesota Management & Budget Commissioner Tom Hanson called “a significant deficit.
According to the report, about 70 percent of the projected shortcomings are a direct result of the state bringing in less money through income taxes.
To date, about 130,000 Minnesotans have lost their jobs in the recession, and MMB forecasts things may get worse — reaching a projected number of 154,000 lost jobs — before they get better. Minnesota’s unemployment rate peaked at 8.9 percent last March and has improved slightly to 6.9 percent in October.
“This is going to be a long, slow climb out of what has been a very deep and extended recession,” said state economist Tom Stinson at a press conference.
Stinson, also a University of Minnesota professor, said the state expects to see employment numbers increase in the spring, when extensive hires will be made to work on the federal census. Other areas of expected hires include home and infrastructure construction and in the leisure and hospitality industry, Stinson said.
“The best thing to do is take care of business now,” Hanson said. “We can’t solve [the 2012-2013 budget] until we get there.”
The report, which analyzed the state’s economic data, including tax revenue trends and expenditures, is released twice each year and offers projections intended to help lawmakers set and balance the state budget.
In response to the report, Gov. Tim Pawlenty said at a press conference that he would not be considering tax increases as means to balance the budget, proposing instead to close the deficit by continuing to cut spending. He said he will consider making cuts among all programs, excluding public safety and military affairs.
Following the governor’s remarks, Senate Majority Leader Larry Pogemiller said Pawlenty will have to be open to making cuts across the board and accept cuts to some of his “pet projects.”
“Everyone is going to have to share in this,” Pogemiller said at a press conference, “even the governor’s programs.”
Republicans and DFLers agreed that the first step in solving the deficit is the passage of a bonding bill in early February to create jobs and boost employment numbers. Pawlenty said he hopes to work with legislators in the upcoming months to create an “affordable and responsible” bonding bill composed of noncontroversial projects early in the session.
“It’s a matter of spending more effectively — not having more money,” Speaker of the House Margaret Anderson Kelliher said.
The state projects spending to reach $31.2 billion by the end of the current biennium, while only $29.9 billion in revenues are expected. The gap is projected to grow even larger in the 2012-2013 biennium, when the state expects its expenses to reach $38.6 billion and see revenues of only $33.2 billion.
Previous projections estimated the gap for the 2012-13 biennium to be less gruesome at about $4.4 billion — nearly $1 billion less than what is now forecasted.
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