State deficit shrinks with help from stimulus

The deficit will stand at $4.57 billion.

With the help of more than $1.8 billion in federal stimulus funds, Minnesota faces a $4.57 billion deficit in the 2010-11 fiscal year , which is much lower than anticipated, the state announced in an economic forecast released Tuesday. The shortfall is $278 million less than originally projected in November , which is due to the funds from the stimulus package. The economy has worsened since the previous projection, and without those funds the deficit would hit nearly $6.4 billion. The economy is in its worst recession since World War II, but could begin showing growth again by 2011, State Economist and University of Minnesota professor Tom Stinson said at a Tuesday press conference. âÄúThis recession is longer and is going to be deeper than was thought in November,âÄù he said. âÄúIt will come to an end âĦ It may take another stimulus package, but it will come to an end.âÄù State revenues are forecast to drop more than $1.1 billion in 2010-11, more than $700 million of which comes from decreased income tax revenue. Stinson said the stimulus will add or save 45,000 jobs in Minnesota alone. The Management and Budget Office projected jobs will come back to the state beginning in 2010. Minnesota has already lost 55,000 jobs during the recession and is expected to lose an additional 70,000 before itâÄôs done, Stinson said. In a normal year, Minnesota would see 40,000 new jobs, he said. Tom Hanson, commissioner of the Management and Budget Office, said the stimulus funds were the positive side of a âÄúgood news, bad newsâÄù scenario. âÄúThe economy continues to deteriorate, which has a negative impact on our state forecast and our state economy,âÄù he said. While state and local governments are eligible for $4.6 billion in aid from the stimulus, the budget projection only takes into account $1.8 billion in stimulus funds set aside for medical assistance money. Legally, the state can only recognize the $1.8 billion in its forecast. The state Legislature and the governor are required to balance the budget during the legislative session, setting up an ideological battle expected to last to at least the sessionâÄôs conclusion in May. Gov. Tim Pawlenty said he would issue a revised budget proposal within the next couple of weeks. In his original budget, announced in January, Pawlenty had proposed a $151 million cut to the University’s budget. On Tuesday, Pawlenty wouldnâÄôt offer specifics about his new budget, except to reiterate that he would oppose any tax increases. âÄúIt is very important from my standpoint that state government not add to the burdens of families and not add to the burdens of struggling businesses by raising their taxes,âÄù he said at a press conference. In January, Pawlenty proposed a $33.6 billion biennium budget, a more than two percent cut over the current budget. If approved, Pawlenty said, it would be the first time biennium budget spending was cut in MinnesotaâÄôs history. The stimulus money only helps relieve the budget problems for the upcoming biennium. The Management and Budget Office projected a $5.1 billion shortfall before inflation for 2012-13. When asked if the Legislature would propose tax increases to solve the budget problems, House Speaker Margaret Anderson Kelliher said the Legislature would seek to balance the budget for the next four years. âÄúIt will be a balanced budget for four years, which means that it has to have its in-flows and out-flows balance.âÄù Kelliher said when pressed whether that would include tax increases. âÄúAll options are on the table. That includes revenue.” Despite the relief brought to the state, Pawlenty remained critical of the $787 billion federal stimulus package on Tuesday, calling it an âÄúold-fashioned Democrat spending bill.âÄù Kelliher said the stimulus has its purpose âÄî a short-term fix for an ailing economy. âÄúThe help that we have gotten from the federal government is like short-term pain medication administered to the patient,âÄù Kelliher said. âÄúWe have a long way until weâÄôre on our way to recovery and we are well again.âÄù -Devin Henry is a senior staff reporter