Forecast hints at good news for Minnesota’s economy

On Feb. 28, state economists released an updated economic forecast that shows the state’s 2012-2013 budget deficit is about $1.2 billion less than was predicted in November 2010. A $5 billion shortfall now remains for the two-year budget cycle that begins July 1.

Most of the improvement is a result of higher-than-expected revenue collections in Minnesota during the last months of 2010. Capital gains tax collections were exceptionally high, due to action at the federal level that prompted increased activity, and other stimulus measures, such as a reduction in the payroll tax, are sparking increased economic activity.

The new forecast is a positive sign that Minnesota’s economy is experiencing a fragile recovery. The state seems to be heading in the right direction, but upcoming events could influence whether Minnesota hangs onto that recovery or falls backward again. Some events are out of our control – things like the uprising in the Middle East and the rising cost of fuel. Other decisions, like how we resolve the state’s budget, are very much in our control.

The improved forecast number doesn’t change the fact that at $5 billion, Minnesota still faces the largest budget deficit in state history. It’s vitally important that the legislature make responsible budget decisions to ensure we don’t disrupt the positive economic progress. It’s widely believed that a careful balance of spending cuts, responsible new revenue and targeted government reforms is the responsible combination needed to solve the deficit and support continued economic recovery.

State Economist Tom Stinson, who has served under Republican and Democrat administrations, confirmed this week that a balanced approach that uses spending cuts and new revenue is the best budget solution for Minnesota. When asked, he said the Republicans’ plan to rely upon an all-cuts budget would be more damaging to the state’s economy than a solution that relies upon cuts as well as new revenue.

Despite this information, all 37 Senate Republicans delivered a letter to Governor Mark Dayton on Monday stating their objection to any form of new revenue used to solve the budget crisis. They remain committed to solving the problem using $5 billion of cuts to vital state services.

Besides flying in the face of economists’ opinions, this position concerns me because it signals a complete unwillingness to compromise in order to reach a budget agreement. In contrast, Gov. Dayton immediately responded to the new forecast with a message of compromise: He updated his budget proposal to reflect some of Republicans’ concerns with his initial proposal that was released two weeks ago.

Gov. Dayton’s new budget plan removes the temporary income tax surcharge on the state’s wealthiest residents, restores proposed funding cuts to the state’s nursing homes, and offers targeted job-creation incentives to Minnesota businesses. It’s a clear effort at compromise that, so far, has not been mirrored by the Republican leaders.

That’s unfortunate, because it’s going to take serious compromise in order to solve this historic problem. Every time Republicans draw another line in the sand, I become more worried that they’re putting us further away from reaching a budget. Instead of relying on political campaign rhetoric, I hope the next few weeks show a readiness to confront the serious responsibilities we all have been elected to address.

Please feel free to contact me about visiting the Capitol or any other issue at: sen.dan.sparks@senate.mn; 651-296-9248; Room 19 State Office Building, St. Paul, MN 55155.

-30-

Senator Dan Sparks
Dan Sparks represents District 27, which includes all or portions of Dodge, Faribault, Freeborn, Mower, and Steele counties in the southeastern part of the state.

Read more news from Sen. Sparks.
Senator Dan Sparks on sabflickrSenator Dan Sparks on sabfacebookSenator Dan Sparks on sabemail