By T.W. Budig
ECM capitol reporter

Republicans grinned, Democrats frowned at the release of November budget forecast on Wednesday (Dec. 1).
While the forecast projects a $700 million budget deficit for the 2006-07 biennium ñ a figure when inflation is included balloons to $1.4 billion ñ it also shows the state closing the current biennium with a $495 million surplus.

Gov. Pawlenty looked to the surplus and other factors as signs of a budget deficit ìmountainî successfully climbed.
The projected 2006-07 budget deficit is a ìfoothillîcompared to the $4.5 billion budget deficit of two years ago, Pawlenty explained.

ìItís (the forecast) good news. And weíre headed in the right direction,î said Pawlenty.

Rep. Jim Knoblach, R-St. Cloud, House ways and means committee chair, said the forecast showed the Republican handling of the state budget is working.

But DFLers were less cheery.

ìThere is no question we have a deficit of $1.4 billion,î said House Minority Leader Matt Entenza, DFL-St. Paul. Minnesota faces a long, cold winter, he said.

State officials point to Health and Human Services (HHS) cost increases and higher education enrollment adjustment cost increases as propelling the 2006-07 budget deficit.

Indeed, higher education and HHS accounts for nearly all of the $556 million projected spending increase for next biennium.
Escalating healthcare costs are seen as driving the almost 20 percent disparity between revenue and spending projected in HHS for 2006-07.

Total revenues are expected to grow 2.8 percent next biennium ñ tax revenues by 7.9 percent.

But projected non-tax revenues didnít grow but shrink.

Finance Commissioner Peggy Ingison attributed the 4.1 percent decrease in non-tax revenues next biennium in part due to the Legislatureís use of one-time monies such as the $1 billion transfer of tobacco funds, in plugging this budget bienniums deficit.

State economist Tom Stinson said Minnesota will not simply economically grow out of the projected budget deficit.

By law, the $495 million budget surplus expected this biennium will be use to bolster the stateís cash flow account and swell the stateís budget reserve to $653 million.

Itís unadvisable to use budget reserve to fix the deficit, argued Ingison, because of the impact it could have on the stateís bond rating.
Pawlenty intends to leave the budget reserve alone. He called any impulse to raise taxes to make good the projected budget deficit a bad option. He pointed to the stateís healthcare access fund, expected to hold $226 million by the end of the 2006-07 biennium, as a possible pot of deficit reduction money.

The budget deficit can be solved without increased gambling revenues, said Pawlenty, but he will likely include a gambling proposal in his proposed state budget, he said.

The governorís budget is due out the third week of January.

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