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Minnesota budget forecast shows smaller deficit

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Gov. Mark Dayton
Gov. Dayton reacts to news of the improved budget shortfall forecast Feb. 28, 2013 at the state Capitol in St. Paul, Minn.
MPR photo/Mark Zdechlik

Minnesota's financial picture got a little brighter Thursday with the release of a new economic forecast.

State officials announced that the projected budget deficit lawmakers must solve this session has shrunk to $627 million, down from the November estimate of $1.1 billion.

Given the chance, Republicans urged Democrats to abandon their proposals to increase taxes and spending. But Gov. Mark Dayton, a Democrat, wasn't ready to back off any of his earlier plans.

After crafting a two-year budget based on the early forecast, Dayton said he was surprised to see a more than 40 percent reduction in the projected deficit. That's a $463 million improvement. Dayton said he plans to release a revised budget proposal within a couple of weeks. But he would not say if it might include any changes in his proposed expansion of the state sales tax or his income tax increase on the wealthiest Minnesotans.

"I don't know what my other options are going to be," Dayton said. "I'll have to access and talk with others and see what we think will be most effective to continue the positive track that we're on."

Jim Showalter
Management and Budget Commissioner Jim Showalter, left, presents details during a news conference on the February budget forecast Thursday, Feb. 28, 2013, in St. Paul, Minn.
AP Photo/Jim Mone

Dayton made it clear he still wants to increase spending on education and other priority areas of the budget. He also announced two new spending proposals: an up-front tax exemption for businesses on equipment purchases and property tax credits for renters.

Senate Majority Leader Tom Bakk, DFL-Cook, said he plans to continue aiming for a significant tax overhaul this session to help stabilize the state economy and end the recent cycle of deficits.

"I do still think strongly that we have to go through this exercise of tax reform to position Minnesota better in the future," Bakk said. "I strongly support having that conversation. I frankly don't think this even slows that down."

The new forecast also shows a projected positive balance of $295 million in the current biennium. Under law, $290 million of that money will go toward delivering some of the delayed payments to school districts that were part of previous budget deals.

That leaves $810 million that the state still owes schools. House Speaker Paul Thissen, DFL-Minneapolis said he wants to make good on all of the delayed school payments this session, in addition to erasing the $627 million budget deficit. He also stressed that new spending on education, job development and property tax relief remain top priorities.

"I don't think this necessarily changes the amount of investments we need to make necessarily," Thissen said. "It may create some more flexibility, but we're going to spend the money we think will make a difference to improve Minnesotans' lives."

"We need a budget that's going to show that our priority is growing Minnesota's economy and creating jobs."

Republicans were taking credit for the improved forecast, which they claim is largely due to their fight against tax and spending increases during the past two years when they controlled the House and Senate.

House Minority Leader Kurt Daudt, R-Crown, said it would be a mistake to change that approach as the economy is recovering. Daudt urged the governor to scrap his budget proposal, not just revise it.

"We need a budget that's going to show that our priority is growing Minnesota's economy and creating jobs," Daudt said. "The policies that the governor has put forth will do exactly the opposite. Taxing middle class Minnesotans in increased sales taxes, in increased costs for goods is going to be devastating to Minnesota's economy. Taxing Minnesota's job creators is not going to make Minnesota more competitive. We need the governor to come up with a new budget."

Despite its overall good news, the forecast also showed that the electronic pull-tab money needed to pay the state share of a new Minnesota Vikings stadium is falling well short of expectations. Far fewer than expected sites are offering the machines and the ones that are in place are generating less money than projected. Dayton said the initial projections were considerably off, and now a correction is needed to make up the difference.

"We're not at that point yet but there are fall back revenue sources for the stadium," the governor said. "There's surtax on the suites and another lottery game. So we'll work with legislative leaders, hopefully on a bipartisan basis, and see what makes sense to do."

Dayton, who said state officials will try to more quickly approve gaming locations, said he believes the revenue will be closer to projections by next year.