State budget deficit predicted for 2008

The deficit could affect higher-education costs, which could raise tuition costs.

Kelly Gulbrandson

While February’s state budget forecast for 2008-2009 predicted more than a $300 million surplus, the latest version of the forecast, released Nov. 30, showed state funds could go in the opposite direction.

The projected deficit of $373 million could have an effect on University students.

Richard Pfutzenreuter, vice president and chief financial officer for the University, said any effects would be unknown until the state legislative session starts in January.

“Right now I just wouldn’t know what effects this could have,” he said.

During the next legislative session, however, decisions about higher education spending will be sent to Gov. Tim Pawlenty, Pfutzenreuter said.

“Hopefully he continues his support of higher education,” he said.

The amount of money the state gives to the University factors into tuition costs, Pfutzenreuter said. Those two sources are the most important in terms of generating money for the University.

Regional economist with the Federal Reserve Bank of Minneapolis Toby Madden said the projected shortfall is because of a decrease in sales tax and corporate income revenues this year.

“(The Legislature) expects the overall U.S. economy to slow for next year because of a variety of factors, including the housing market and higher price of oil,” Madden said.

He said, however, the amount of money the state plans to spend on higher education has not decreased, so the University shouldn’t be affected much by the deficit.

While the effects of the shortfall might not be felt immediately at the University, it could affect how the city operates.

Minneapolis Mayor R.T. Rybak said he “sadly” wasn’t surprised by the predicted budget shortfall.

“It illustrates that the short- sided policies of the state have proven to be a failure,” he said. “For the past five years we have been hearing the governor and the Legislature say all we need to do is cut taxes for the wealthiest Minnesotans and it would lead to more jobs, which just isn’t true.”

Rybak said Minneapolis added 9,000 jobs last year, and said the number of jobs is growing despite areas around the state losing jobs.

He said, however, that any deficit could affect how it operates.

For 2002-2003, when the budget deficit was $1.95 billion, $37 million was cut from the city’s budget, Rybak said.

“We re-formed departments, cut workforce, decreased health-care cost and paid down $70 million in debt,” he said. “But it would be helpful if the state could get back to proven ways of growing the economy that the governor has ignored.”

Minnesota’s financial challenges will increase, he said, but it’s critical to move forward on investments that have to be made to keep the economy going, including transportation, he said.

Rybak said he does see signs of strength in the area, but the mortgage crisis will likely continue to be a “huge” problem.

Madden said while the state’s economy is “well-diversified,” it tends to follow national trends such as the credit crisis, higher fuel costs and the slumping housing market.

He said if these projected results become reality, the state reserves will be more of a concern for the Legislature, which would have to raise revenue and decrease spending.

However, economics professor Ed Foster said the amount of the projected deficit is not huge, and accounts for only about 1 percent of the state’s overall budget.

While this is not a “big deal” now, he said, it could become one in the future if the Legislature doesn’t start cutting spending and raising revenue, and could put the University on the losing end.

“In the past several years, the University has been more vulnerable than some other programs that have been higher priority, such as primary and secondary education,” Foster said. “The University and state university system have been squeezed more.”