Gov. Tim Pawlenty’s budget plan for 2004-05 is $125 million short, according to the budget forecast the state Finance Department released Thursday.

The February budget forecast represents the final numbers legislators will use in setting the budget for the 2004-05 biennium.

Finance Commissioner Dan McElroy said although the shortfall seems large after cutting $4.2 billion from the budget, “we still have a few things left in the tool tray.”

The change from the November forecast comes from a decrease in expected revenues to the state general fund.

State economist Tom Stinson said two-thirds of the revenue loss comes from a decrease in income taxes due to job losses and a statewide wage decrease.

Although the state’s expected spending also decreased, it did not keep pace with the revenue shortfall.

The $125 million difference comes from an $11 million shortfall in the 2003 budget and a $150 million decrease in revenue to the state’s general fund, offset by a $32 million decrease in spending and a $4 million surplus from Pawlenty’s original budget plan.

House Speaker Steve Sviggum, R-Kenyon, said even with the updated numbers, raising taxes and taking money away from K-12 education are out of the question.

“It’s going to be difficult, but you have to remain resolved,” Sviggum said. “The goal is protecting families and not raising the tax burden.

“The budget change of today was not significant in comparison to the size of the budget or the budget deficit,” Sviggum said. “We are taking every action, starting today, to reach the governor’s recommendations.”

Thursday’s budget forecast also predicted an $11 million shortfall in the existing 2003 budget. The shortfall comes from a $30 million decrease in revenues offset by a $19 million decrease in state spending.

Stinson spoke to the House Ways and Means Committee on Thursday and said Minnesota’s economic forecast is more optimistic than most, even though Minnesota’s economy is currently underperforming in the national economy.

Since February 2001, Stinson said, the state has lost 2.4 percent of its employment, compared to the national decrease of 1.3 percent.

Stinson said the forecast assumes a quick, successful war with Iraq and Congress passing a large economic stimulus package by the end of the year.

“A no-war scenario is not necessarily a good scenario for the economy,” Stinson said.

“Economists don’t really know how the war is gonna come out, or the size of the fiscal package,” he continued. “There is a huge amount of uncertainty.”

Stinson also said keeping the budget reserve should remain a high priority.

“A budget reserve is certainly the most financially prudent thing to do, even if it’s a little painful,” Stinson said.

McElroy and Stinson plan to present the budget forecast to the governor early next week. They expect a response from him by the end of the week or early the following week.

Emily Johns covers politics and welcomes comments at [email protected]