State officials project $2 billion deficit

by Tom Ford

The North Star State has not escaped the national epidemic of a sliding economy. State officials projected Tuesday an approximately $2 billion deficit for Minnesota’s budget next year.

The budget forecast raises uncertainties for state agencies, including the University.

The deficit – the first since 1992 – overturns the $242 million surplus legislators expected when planning the 2002-03 budget.

“The downturn in the national economy has taken the wind out of our sails,” said Finance Commissioner Pam Wheelock.

She said while there was little change in the estimates of expenditures, the weakening national economy has severely stunted projected state revenues.

Renewed economic growth is not expected soon, and the revenue losses will impact the 2004-05 budget, Wheelock said.

Predicted revenues for next fiscal year total $25.4 billion, indicating a 7.6 percent drop from the forecast made in February.

The state’s major sources of revenue – individual income, sales and corporate taxes – are projected to decrease by 6.7 percent, 10 percent and 28.1 percent, respectively.

State economist Tom Stinson said the nation was experiencing an economic downturn before Sept. 11, and the attacks pushed the economy over the edge into a full-blown recession.

Minnesota’s national economic consultant, Data Resources, Inc., forecasts the recession will last until early 2002, and the nation’s real gross domestic product will be approximately 6 percent lower than February’s projections.

“(The deficit) could not come at a worse time,” said University President Mark Yudof.

Over recent years, Yudof said, the University has developed tremendous momentum in terms of increasing graduation rates, research grants and national recognition.

But despite the University’s successes, Yudof said, signs of a recession could reverse the progress overnight.

He said the University has begun examining budget areas in which cuts could be made. While no decisions have been reached, he said, he is reluctant to consider either further tuition increases or cuts in programs benefiting students, such as financial aid.

“Tuition increases have hit students pretty hard already,” he said. “I don’t think more should be pushed on students.”

Because Tuesday’s forecast represents a prediction of revenues rather than an actual shortfall, Yudof said he’s “mildly optimistic” the next forecast in February will improve and provide more definitive numbers on which to base possible cuts.

Gov. Jesse Ventura said the deficit level surprised him.

But the governor sounded a hopeful note in addressing the implications of the figures.

“Let’s look at this as a positive,” Ventura said. “It’s difficult to reform when everyone is fat and sassy and they got plenty of money.”

In an economic downturn such as this, he said, agencies receiving state funds must reform their budgets making difficult cuts.

While he has not eliminated any solutions to the deficit, Ventura said a tax increase would be the last option.

The governor said he hasn’t ruled out calling a special session before the Legislature convenes Jan. 29. He said a special session now would be more justified than the session held earlier this year.

Tom Ford welcomes comments at [email protected]