Minnesota budget problems

The Senate wants to empty the state’s checking account.

Minnesota’s projected $935 million budget shortfall is an estimate based on optimistic assumptions that the economy in Minnesota and the United States will rebound and that the recession will soon come to an end. But, the nearly $1 billion state deficit could very well increase. This is because the budget forecast assumes the cost of gas will decrease from around $100 per barrel, as it is now, to about $75 during the summer, and the national economic stimulus package will lift the economy out of recession in the second half of this year.

The budget projection presumes energy use and spending will decrease in the United States as a result of the recession, and the reduced demand will lower prices. The forecast, however, does not take into account that international demand will stay the same, or even increase, in Europe and China for example, keeping prices in America the same or even higher.

Minnesota’s budget depends on the state of the economy. Good times increase state revenue gained from taxes as spending also increases. Hard times decrease state revenue gained from taxes as spending also decreases.

And in these economic hard times, the budget shortfall will continue to deepen as there is no indication America’s fortune will reverse anytime soon.

Since the budget projection, Gov. Tim Pawlenty has proposed a mix of spending cuts, especially from social services, money from the budget reserve and money from the health care access fund to resolve the state’s shortfall. Yet, state spending is not out of control – the Legislature simply did not spend its way into this deficit. And cuts to vital social programs in a rescission will only weaken the already thin safety net Minnesotans have to fall back on – payrolls have decreased by 63,000 jobs. The DFL’s proposals are no less unrealistic. The Senate wants to empty the state’s checking account – leaving no money for an even rainier day.

These actions, by both the governor and the Senate, are short term solutions – the recession is a long term problem.