Update: Minnesota budget picture improves $463 million

Schowalter

By Danielle Killey

Minnesota still has a projected budget deficit for the next two years, but it will be $463 million lower than anticipated late last year.

“Very good news for Minnesota,” Gov. Mark Dayton said early this afternoon.

The governor expected a bigger deficit: “I was surprised this morning.”

His comment came minutes after Minnesota Management and Budget reported the state will face a $627 million shortfall in 2014-2015, down from $1.1 billion predicted in December.

Lawmakers and Dayton will use the information to set the state’s budget in the remaining three months of the legislative session. Lawmakers have discussed the budget, but have been waiting for the updated number to dig into debate.

The state technically is not allowed to have a deficit, so it would have to offset that by raising taxes, cutting spending or a combination.

While Dayton emphasized the improved economic picture, resulting in more revenue for the state, that is not the full story.

“It is not progress anyone is satisfied with,” he said.

Commissioner Jim Schowalter of Minnesota Management and Budget said the economy is being hurt, in part, because federal budget issues remain unresolved. The economy, he said, is “making steady progress, but not nearly enough.”

He said the shrinking budget “is not dramatic.”

State Economist Tom Stinson downplayed the economic impact of massive federal budget cuts due to begin Friday, but said it could slow state economic growth.

Dayton suggested the newly available money be used for tax cuts, while not backing away from tax increases he wants on the wealthiest Minnesotans and massive sales tax changes.

The governor’s proposed budget plan would spend $38 billion over the next two years. His plan includes tax changes expected to bring in more money, including an extra $1.1 billion from higher income taxes on the richest Minnesotans and about a $2 billion net increase from sales tax changes. The plan would lower the sales tax rate to 5.5 percent from 6.875 percent but expand what is taxed.

“While today’s news shows improvement, the state still faces a $627 million budget shortfall,” Minnesota DFL Chairman Ken Martin said. “Leaders need an honest budget that gets Minnesota off the financial roller coaster of the last decade and makes investments to move Minnesota forward.”

With the deficit dropping, some wonder whether Dayton’s plan to raise taxes still is necessary.

“You don’t need to raise the rate to raise revenue,” House Minority Leader Kurt Daudt, R-Crown, said, referring to income taxes. “You need to get more people back to work.”

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