2 p.m. update: Slower economy slows state budget growth
ST. PAUL - Minnesota's economy trails the rest of the country, poking a $373 million hole in the state budget. A slumping housing market, high oil prices and lower employment combine to make Minnesota's economic outlook worse, by a small amount, ...
ST. PAUL - Minnesota's economy trails the rest of the country, poking a $373 million hole in the state budget.
A slumping housing market, high oil prices and lower employment combine to make Minnesota's economic outlook worse, by a small amount, than other states, State Economist Tom Stinson said today. That means lower tax collections, leaving less money available for state programs.
State Finance Commissioner Tom Hanson announced this morning that state revenues now are expected to be $373 million less than earlier predicted. He did not see that as a major problem for state government.
"This problem is manageable and we are in a good position to address it," he said.
The commissioner said "record-high" budget reserves provide plenty of cushion. And, he added, the state is just five months into its 24-month budget, so there is plenty of time to make changes.
Hanson said the slowdown is "a hair over 1 percent of the state's general fund." The state spends more than $34 billion in the current two-year budget.
State revenues are expected to continue to rise, but not as much as predicted in earlier budget forecasts.
"We have a lot of options," Hanson said, adding that he does not expect any tax increases to be needed.
Republican Gov. Tim Pawlenty has said he does not want to increase taxes.
Democrats responded to today's budget forecast by asking Pawlenty to call a special December legislative session so lawmakers could approve borrowing more than $600 million to fund public works projects statewide. They said the measure could give jobs to 10,000 construction workers.
Senate Tax Chairman Tom Bakk, DFL-Cook, said besides a public works bill - funded by the state selling bonds - Democrats want to close what they see as a loophole that allows some corporations with foreign holdings to avoid paying taxes. That would cut the $373 million deficit by $244 million, he said.
House Speaker Margaret Anderson Kelliher, DFL-Minneapolis, said Democrats would consider a transportation funding package if Pawlenty wants one.
Senate Majority Leader Larry Pogemiller, DFL-Minneapolis, said he prefers to limit a special session to items like those public works projects that Democrats and the Republican governor already agree to build.
Economic predictions released today were not good. Stinson said Minnesotans can expect state economic growth to be less than half of the normal 3 percent annual increase in some months, it is expected to be far less than half the normal growth.
Stinson said the slowing economy does not indicate a recession, but the state's economic consultant does place a 35 percent chance that a recession is possible.
Stinson reported that 2,000 jobs were added in Minnesota last year, compared to 12,000 in earlier years. About 30,000 jobs should have been added if Minnesota's economy mirrored what is happening across the country, he said.
"This is not particularly a good record," Stinson said.
At the same time, salaries have not dropped, he added, perhaps because businesses are eliminating part-time jobs in favor of paying full-time employees overtime.
Finance Department figures show that the biggest part of the problem came in a $14.3 million decrease in expected corporate tax revenues. Individual income taxes are in line with earlier predictions, but sales taxes now are predicted to drop 3.3 percent.
At the same time, state spending only looks to rise 0.2 percent.
Stinson said he expects the economic slump to be the worst in the first half of 2008, but growth after that should still lag behind the normal 3 percent annual growth. The expectation of better times in late 2008 is based on lower oil prices.
The housing market, which significantly affects northern Minnesota's lumber industry, is not expected to improve.
"It doesn't look to me like housing is going to turn around any time soon," Stinson said.
Stinson said there lawmakers can do little to improve the economy. Slumps usually last six to nine months, he said.