Minnesota is facing a $6.2 billion deficit in the upcoming biennium, up from earlier projections of $5.8 billion. The shortfall represents about 16 percent of the state's two-year budget.
When Republican Gov. Tim Pawlenty and the DFL-controlled Legislature balanced the budget last spring, they relied heavily on one-time federal stimulus money and delayed payments to school districts.
That temporary fix continues to hold and even resulted in a $399 million surplus on the current bottom line, meaning Minnesota will not have to borrow money in the short term to pay its bills.
But the financial picture beginning in fiscal 2012 looks grim for Pawlenty's successor and the new GOP legislative majority. Steve Sviggum, the newly installed commissioner of Minnesota Management and Budget, described its as "unfinished business."
"There are significant structural problems ranging from anywhere to $2 billion and $3 billion a year," Sviggum said. "The Legislature and the governor have played all of the cards that are available."
"The Legislature and the governor have played all of the cards that are available."
Sviggum and his team of budget analysts explained that last session's budget fix resulted in an unusually high growth in projected expenditures, because the spending commitments remain as the one-time federal funding disappears.
Still, Minnesota Management and Budget Deputy Commissioner Jim Schowalter said the federal stimulus was always intended as a temporary fix to help states weather the economic storm.
"We're now to a place where we have to figure out a solution, and states are on their own to figure out the solution," Schowalter said. "The federal government got us to this place and frankly all of the states have a similar problem."
Minnesota's economy is recovering slower than expected. Unemployment continues to keep state income tax revenues far below expectations. That's why Republicans in the House and Senate are stressing the need to boost the economy and grow new jobs.
REPUBLICANS, DFLERS AT ODDS OVER TAXES
House Speaker-elect Kurt Zellers, R-Maple Grove, said tax increases are not part of the solution.
"If we can not go back to the job providers, the business owners of the state of Minnesota, and ask them for more revenue, that will allow them to spend either in their business, on employees, on expansion," Zellers said. "The rising tide will lift all boats."
Zellers and Senate Majority Leader-elect Amy Koch, R-Buffalo, are promising a budget that will force state government to live within its means. But they're not offering many details on what a cuts-alone budget might look like.
"The rising tide will lift all boats."
DFL House and Senate leaders are helping fill in the blanks. They say a cuts-only approach will harm schools and nursing homes, while driving up local property taxes. Senate Minority Leader-elect Tom Bakk said there has to be some new revenue.
"You know when times get tough in peoples' families, people always talk about them cutting spending," Bakk said. "Sometimes they go out and get a second job because they have to, because they just need a little more revenue in that family's budget.
Bakk criticized Gov. Pawlenty for leaving office after eight years with a record deficit and depleted budget reserves. But Pawlenty was offering a much different spin. He said he's leaving office with a surplus. As for the projected deficit, Pawlenty blames DFL leaders for not agreeing to his entire budget plan last session.
"They didn't want to do it because they wanted the number to be as big as possible because when they maintained the Legislature and got their DFL governor in here that would justify their grand vision for whopping tax increases for Minnesota," the governor said. "And their plan didn't work.
With the governor's race still waiting for the conclusion of a recount, state officials provided private budget briefings to both Democrat Mark Dayton and Republican Tom Emmer. Dayton later told reporters that his budget plan will still include an income tax hike in top earners. Emmer did not talk to reporters.