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Paynesville Press - March 9, 2005

New forecast reduces budget deficit

By Melissa Andrie

An economic forecast released by the Department of Finance last week reduces the expected deficit for the 2006-2007 biennium by $234 million and predicts an additional $175 million in revenue for the current fiscal year.

The deficit for the coming biennium, which was projected at $700 million in November and has been set at $466 million by the new forecast, must be balanced by the legislature during the current session.

The change, though it is less than one percent of the $30 billion state budget for the biennium, cut the deficit by a third.

Forecasts are released in November and February, and this improved forecast, due to a recovering economy and corresponding higher tax revenues, is the largest between two consecutive forecasts since November 2000.

The state's fiscal years run from July 1 to June 30. The state budgets in two-year cycles called bienniums. The 2006-2007 biennium includes the 2005-06 fiscal year and the 2006-07 fiscal year.

Governor Tim Pawlenty released a statement saying that he is pleased with the forecast results, which he believes shows that "Minnesota's financial future is dramatically brighter" than when he became governor.

Of the extra $175 million in revenue for this fiscal year, $25 million is required by law to replenish the budget reserve, and $150 million will go to schools, covering an accounting shift that had been made in 2003. Legislators, who will base the biennium budget off this forecast are glad to have more flexibility, though tough decisions will still need to be made, according to Sen. Steve Dille (R-Dassel).

Dille, who disagrees with the governor's proposed budget cuts to state programs that employ truant youth and provide small business loans, said that in order to maintain these programs and to enhance funding to areas like schools, many budget cuts still will be required.

Rep. Larry Hosch (DFL-St. Joseph), stressed the importance of school and health care funding in budget decisions. He stated that past legislation giving schools less state funding and, instead, more power to raise revenue in their districts has caused inequality between suburban and rural districts.

Hosch believes that an expansion of school funding is necessary and will be most effective if adjusted to reflect this disparity between districts, rather than being an "across the board" increase.

Gov. Pawlenty, who has now reached an agreement with three of Minnesota's poorest Indian tribes on a casino proposal that would be a partnership between the tribes and the state, said that the forecast didn't change his commitment to raising new revenue this way.

Hosch said that the interests of the tribes, who are disadvantaged by location, are important to consider, but the state should not rely on gambling for revenue and state finances shouldn't be the primary cause of such a partnership.

As required by state law, expected inflation is included on the revenue side of the forecast but not on the expenditure side, a fact which concerns both Dille and Hosch. The legislators agree that though this makes the budget easier to balance, inflation will occur, and if the state's budget is unprepared more cuts will be needed.

State financial officials estimate that including inflation in the projections would increase the budget deficit for the upcoming biennium to $1.2 billion. A bill passed by the Senate in January would put inflation back into the state's forecasts, as it was prior to 2002, but a similar bill has not passed the House.

There are three deadlines in April to keep budget bills moving through the House and Senate committees and then more work will be done on the floor of each house. When the houses each pass a bill, a bipartisan conference committee, composed of representatives and senators, will produce a final budget bill that both bodies will pass.

This final bill will be sent to the governor to review and, if he chooses, to sign into law.

(Editor's Note: Andrie is a 2004 graduate of Paynesville Area High School and a freshman at the University of St. Thomas in St. Paul. She is covering the 2005 legislative session for the Paynesville Press.)

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