Expected Thursday: Minnesota State Budget Forecast

The Minnesota Management and Budget Office will release the perennial November Forecast for the first time ever since its the creation, this week Thursday. In June 2008, the Minnesota Department of Finance was combined with the Minnesota Department of Employee Relations (DOER); in a cost saving measure. The new Department is served by one Commissioner, Tom Hanson, a Governor Tim Pawlenty appointee, and is under one central mission:

“Our mission is to increase state government’s capacity to manage and utilize financial, human, information and analytical resources in order to provide exceptional service and value for Minnesota’s citizens.”

Regardless, of the name of the Department the economic news is likely to show a widening projected deficit. Current conjecture puts the state deficit for fiscal years 2010-2011, which begins July 1, 2009, somewhere between $1-$5 billion dollars short.

The 2008 February Forecast called for projected spending to outstrip projected revenues by a deficit of $1.086 billion and adjusting for inflation, which the current formula doesn’t do, it actually adds another $1.04 billion to the deficit. The previous forecast cited declines in individual income tax revenues, corporate tax revenues, and contracting sales tax revenue. These trends undoubtedly will re-surface and continue exacerbate Minnesota’s budget outlook. The big question is how much?

After the new numbers emerge the Governor is required to deliver a budget to the legislature before the end of January in each odd numbered year. It is important to remember the Governor’s budget is only a recommendation but practically speaking it represents the typical starting point from which the legislature starts the budget process. Also important to note that Minnesota law does not explicitly require a balanced budget rather, it derives from the limits on borrowing contained in the constitution. The state may issue debt only for specified purposes. Borrowing money to pay for a deficit at the end of the biennium is not one of these purposes. Thus the budget must be in balance at the end of the biennium Minn. Const. art. XI, sec 5.

A growing list of legislative priorities such has Education, Energy, Environment, Health Care, Housing, Human Services, Transportation, and many others combined with decreasing financial means may prompt a very divisive and politically charged legislative session. Suffice to say the newly increased Democratic majorities in both bodies of legislature will certainly have their own agenda; juxtapose that with Republican Governor Tim Pawlenty’s prerogatives and they certainly will have their (budget) work cut out for them this year.