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Published December 02, 2010, 02:23 PM

Minnesota's Projected Deficit Nears $6.2 billion in 2012-13

A small surplus in the short run wasn't enough to mask an otherwise dismal budget outlook for Minnesota on Thursday, with incoming state leaders facing a $6.2 billion deficit and none of the cosmetic solutions used to cover up past financial gaps.

By: Associated Press,

ST. PAUL, Minn. (AP) — A small surplus in the short run wasn't enough to mask an otherwise dismal budget outlook for Minnesota on Thursday, with incoming state leaders facing a $6.2 billion deficit and none of the cosmetic solutions used to cover up past financial gaps.

The expected deficit is almost 16 percent of the two-year budget lawmakers must set in 2011. The updated forecast also includes a $399 million surplus for the budget period that closes in June.

There is no new federal stimulus aid on the way and the state has already drained its savings, delayed nearly $2 billion worth of payments to schools and juggled other payments to stay solvent.

"We've kind of played all the cards that are available," said Steve Sviggum, interim commissioner of Minnesota Management and Budget. "There are very few cards left to play."

Given the new partisan alignment at the Capitol — the GOP will control both legislative chambers and a Democrat is likely to be governor — there is no smooth path to fixing it. Republicans are pressing to cut spending to right the budget while Democrats say new taxes need to be part of the solution.

"We're not going to go back to the taxpayers and ask them for more money," said incoming House Speaker Kurt Zellers, R-Maple Grove.

He added: "In your tough economic times, you focus on the needs, not on the wants."

Republicans wouldn't lay out specific cuts and didn't rule out reducing business taxes to improve the state's economic climate.

Democratic lawmakers blamed the deficit on departing Republican Gov. Tim Pawlenty, a likely presidential candidate. House Minority Leader Paul Thissen called it "Tim Pawlenty's legacy."

For his part, Pawlenty took credit for the short-term surplus and said he was leaving the state with a balanced budget and money in the bank. He ripped the practice of including automatic spending increases in the forecast as "ridiculous and irrational."

Senate Minority Leader Tom Bakk criticized Pawlenty for vetoing past proposals to raise taxes and suggested the problem can't be fixed now without new revenue in the state budget.

Democrat Mark Dayton, who ran for governor on a tax-the-rich platform, leads Republican Tom Emmer pending the conclusion of a statewide recount of the race. Dayton described the deficit as a "very, very serious challenge" that makes it "imperative" that the next governor takes office on time.

Dayton said the budget situation brings "as far as I can tell, no good options." He said if he becomes governor, he plans to include the top income tax increases in his budget proposal.

"I think he's left us in a terrible situation," he said of Pawlenty.

Emmer didn't make himself available for questions. Later, he issued a statement saying the forecast proved his campaign message. "Government must live within its means and control spending in order to drive Minnesota's economic engine forward," the statement said.

The projected deficit already includes the $384 million cost of opting into an early expansion of federal Medicaid health care, as Dayton has vowed to do under the health care overhaul. If Emmer becomes governor or a lawsuit keeps Pawlenty in office past the Jan. 15 opt-in deadline, that money would be subtracted from the shortfall. Not taking that federal money could wipe out a special health fund fed by taxes on medical providers.

The short-term surplus means the state won't need to tap a $600 million credit line to pay its bills this month. It also prevents Pawlenty from cutting spending on his own before the new Legislature convenes next month.

"The projected deficit in the future is fictional, in the sense that it is a projection based on a bunch of events that aren't going to happen," Pawlenty said.

For the two-year budget that begins next July, revenues are expected to climb by $1.5 billion, or 5 percent. But the spending commitments are on course to rise by $8.3 billion, or 27.5 percent. If all those obligations were funded, the budget would grow to $38.6 billion for the 2012-13 fiscal years.

Part of the disparity is the result of IOUs coming due for delayed school payments and the expiration of federal stimulus dollars, which propped up state programs over the past couple of years.

"We're now to a place where we have to figure out the solution, and states are on their own to figure out the solution," said Deputy Management and Budget Commissioner Jim Schowalter.

Some of the extra spending is also attributable to population growth, such as a higher number of students in public schools and more people relying on subsidized health care programs.

The deficit projection comes with controversy. Republicans argue that the number is overblown because it includes automatic increases in programs such as public health care. Democrats counter that the real figure may be higher because inflation isn't factored in — adding $1 billion more to the shortage, according to the official documents.

Lawmakers and the governor use the twice-yearly projections of tax collections and spending patterns to set the state budget. Forecasts for deficits lead them to cut spending, raise fees, take accounting maneuvers and fight over tax increases, while projected surpluses can result in tax cuts and spending increases.

State economist Tom Stinson said he expects a very gradual economic recovery, with slow job growth. He said Minnesota has recovered about a third of the 157,000 jobs lost during the recession. Another economic forecast is due by early March.