The Free Press, Mankato, MN

Local News

December 5, 2008

Minnesota faces monster deficit

$5 billion deficit will force tough choices

Minnesota state government is facing a $5.27 billion budget deficit over the next 2 1/2 years, forcing difficult choices in the upcoming legislative session and maybe even sooner.



State leaders announced the deficit on Thursday at a news conference where they described the underlying economic conditions as the worst in 25 years and possibly dating to World War II.



"The economy, as is no secret to anyone, has body slammed our state budget," said Tom Hanson, commissioner of Minnesota Management and Budget.



The shortfall includes a $4.85 billion shortfall for the upcoming two-year budget cycle, plus a $426 million gap for the current budget that ends in June. In dollars, that's a bigger hole than the state has ever faced, but the 2003 deficit was a slightly bigger percentage of the state's general fund.



Hanson said Minnesota finds itself with plenty of company, with at least 41 states experiencing deficits. "We're lucky we're not California," he said, referring to that state's $11 billion shortfall.



State Economist Tom Stinson said the recession driving Minnesota's problem will be long and the worst since World War II, with a slow recovery expected.



"The bottom line - without getting into too many gory details - is this recession will be different," Stinson said, adding, "We have a significant problem looking out into the future. We are going to lose a lot of jobs."



Stinson said he expects another 58,000 loss in jobs in Minnesota between now and the end of the recession. And he warned it could still get worse, given problems in the housing sector and the aging population.



A new forecast will be issued in late February.



Minnesota's constitution requires a balanced budget by the end of each two-year budget cycle.



Lawmakers have few fallback options after nearly draining the state's reserves earlier this year.



They're already talking about unconventional approaches including starting the budgeting process from scratch and privatizing the Minneapolis-St. Paul International Airport.



Gov. Tim Pawlenty is due to release his budget plan in late January. He has said it's time for "quantum change."



There's a chance lawmakers and Pawlenty could fix the short-term problem this month, allowing them to focus entirely on the bigger gap when they convene their 2009 session.



One option for Pawlenty is to empty the state's nearly depleted rainy day fund and use his executive authority to cut spending enough to wipe out the rest of the near-term deficit.



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