State weighs options as fiscal cliff looms

Minnesota Gov. Mark Dayton

ECM Capitol Reporter

State officials took the unprecedented step of crafting two November state budget forecasts, the second and more dire showing the economic wallop of having the nation plunge off the federal fiscal cliff.

It’s a tale of two outcomes.

“This isn’t a gloomy forecast,” State Economist Tom Stinson said the November budget forecast shorn of fiscal-cliff implications.

Because state general fund revenues are expected to exceed end-of-session projections by about $1 billion, the extra dollars by law will buy down the $2.4 billion K-12 funding shift by more than half, leaving about $1 billion outstanding.

“After a decade of under funding, Minnesota schools will certainly appreciate the $1.3 billion payback of the state’s IOU, which is required by law,” Education Minnesota President Tom Dooher said in a statement.

But ultimate gloom could be injected into the forecast by events in Washington, Stinson warned, should Democratic President Barack Obama and Congress fail to avoid the automatic spending cuts and tax increases of the federal Budget Control Act, penalties exacted by failing to achieve a federal budget agreement.

The potential impact to the state resulting from such a failure is stark.

The state’s budget forecaster, Global Insight, foresees a recession beginning in early 2013 nationally if federal officials are unable to reach a budget settlement.

State income tax revenues could plummet by more than a $1 billion, sales and corporate taxes by at least $350 million and $250 million, respectively, it’s estimated.

The state budget deficit if a federal budget meltdown occurs could approach $3 billion — about $1 billion in deficit already is projected.

Beyond this, a recession could see the state’s current 5.8 percent unemployment rate rise to 7.1 percent in 2014, with personal income declining by more than four percent in 2015, state officials warn.

“We still have some tough decisions and heavy lifting to do,” Management and Budget Commissioner Jim Schowalter advises incoming freshmen lawmakers to the Minnesota Legislature.

For the full story, see the Thursday, Dec. 13 print edition of the Times.