Minnesota’s budget deficit falls to $5 billion

Federal action helped trim $1.2 billion from the state’s budget shortfall for 2012-2013.

by James Nord

MinnesotaâÄôs previously estimated $6.2 billion budget deficit for the next biennium was reduced by about one-sixth to $5 billion, largely due to far-reaching federal government action, according to the state economic forecast released today. The reduced shortfall includes a $264 million improvement in state funds this biennium over the November budget forecast and a $896 million increase in revenue in the 2012-2013 budget cycle. Minnesota Management and Budget Commissioner Jim Schowalter said he was âÄúpleased to present modest improvementsâÄù in the stateâÄôs fiscal projections, but stressed that the gains donâÄôt mean MinnesotaâÄôs budget crisis is over. The political ramifications of a lower shortfall are immediate. Gov. Mark Dayton revised his proposed budget to exclude an income tax surcharge that would make Minnesota the highest taxed state in the nation. He would also limit about $200 million in health and human services cuts to low-income health care programs and nursing homes. Federal tax policy, including a reduction in payroll taxes and a delay in a federal capitol gains tax increase, helped the state realize unanticipated revenue this biennium. Also included is a $165 million reduction in Health and Human Services funding because Gov. Mark DaytonâÄôs early Medicaid opt-in will begin burning up state cash later than previously thought. But state economic experts warned that the current projection was based on some very volatile premises. Revenue increases from capital gains taxes, which come from stock market earnings, are often hard to predict. Also, the forecast was completed without before unrest in the Middle East began spiking oil prices significantly. As previously projected, structural budget problems plague Minnesota into future bienniums. The current estimated shortfall for the 2014-2015 budget cycle is about $4.4 billion.