Grim news expected in Minnesota economic update

The state's unemployment rate is up. The stock market is down and the nation's credit market is virtually frozen. State Economist Tom Stinson said the news across Minnesota isn't good.

"The economics profession is almost unanimously agreed that we are in a recession," Stinson said. "The question is how deep and how long will it last."

Stinson said there is some uncertainty in the state's economic future because the financial markets are in such turmoil. He said that makes it difficult to predict the state's economic picture over the next few years.

"It's going to get worse before it gets better."

Stinson warned that the short term outlook could be grim as job losses continue to mount.

"It's going to get worse before it gets better," Stinson said. "Over the next few months we're going to see losses nationally in excess of 100,000 or maybe in excess of 150,000 jobs per month. Hopefully this will all start to smooth out sometime next spring and by early next fall, we'll see economic growth picking up again. But this is going to be a long, tough road."

The economic news means Gov. Tim Pawlenty and lawmakers will be forced to make tough decisions when they return to the State Capitol in January. Voters will decide which candidates for the Minnesota House head to St. Paul to craft that budget.

And, with 25 days until the election, House candidates are mixing campaign promises with a dose of financial reality.

"What Minnesotans want is to get out of the roller coaster budgeting," said DFL House Speaker Margaret Anderson Kelliher. "This is going to be quite a big dip in the roller coaster this time around because of what's happening nationally."

Kelliher's party is five seats away from a veto-proof majority in the Minnesota House. DFLers already have that majority in the Senate.

Kelliher said citizens across the state already expect a slimmed down budget in light of the recent news. But, she said citizens also expect greater investment in schools and job creation.

Kelliher said all budget options should be on the table including spending cuts and a potential tax increase on wealthier Minnesotans.

"When you have the wealthiest Minnesotans, those above the $400,000 mark of income, after deductions paying less than the middle class, I think there is some concern about that," Kelliher said. "I think people will be looking very closely at that when they come to the Capitol."

Kelliher points to state figures showing that those making greater than $400,000 a year pay a smaller percentage of their income in taxes than people making between $40,000 and $60,000 a year. She said correcting that disparity is a matter of tax fairness. Governor Pawlenty's spokesman, Brian McClung, disagrees.

"When Democrats talk of tax fairness, that's code for a tax increase," McClung said.

McClung said budget forecasters are already projecting a $1 billion shortfall for the two year budget that starts in July. He said the recent economic news will only make that figure larger. McClung said Governor Pawlenty will not support any tax increases to balance the budget.

"We think there are some things that you could do to prioritize and make sure that the money gets to where it needs to be," McClung said. "But people need to ask those who are making big promises 'How are you going to pay for this? Are you willing to cut something else or are you really talking about a tax increase?"

McClung said Pawlenty will support greater spending for some programs like education. But, in turn, the governor will propose spending cuts in areas like health and human services.

Republican House Minority Leader Marty Seifert, supports that philosophy. He also wants tax cuts to businesses that use the money to hire more workers.

"It used to be that the old Republican line was "Let's just cut business taxes and hopes it all works out,'" Seifert said. "I think we want to have more of a social contract that at least most of the money is used for job creation."

The stakes are high for Seifert and House Republicans this year since DFLers are just a few seats away from a veto-proof majority.

Seifert has used that pitch to warn Republican activists that his caucus is the last line of protection for Gov. Pawlenty. Pawlenty appears to share the sentiment. Seifert said he's been making appearances in targeted House Districts to help elect Republican candidates.

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