MN Budget Deficit Smaller Than Projected Earlier

The budget deficit forecast for 2014-2015 has dropped from $1.1 billion to $627 billion, meaning state legislators will need less in tax increases or spending cuts to balance the budget.

A new budget forecast shows that Minnesota will face a $627 million deficit in the 2014-2015 biennium—a significant drop from the $1.1 billion deficit that was projected in November.
 
That means Governor Mark Dayton and the Minnesota Legislature will need $463 million less than originally thought in tax increases or spending cuts to balance the budget.
 
Dayton in January unveiled a major tax overhaul that he said was necessary to close the state’s deficit. His proposals included reducing the corporate tax rate, increasing income taxes on the wealthiest Minnesotans, freezing property taxes on businesses, and making dramatic changes to the state’s sales taxes—including a 5.5 percent sales tax on business-to-business services.
 
Some local businesses have been up in arms about some of Dayton’s proposals, but the new budget forecast offers some relief as those proposals were made based on the earlier forecast of a $1.1 billion budget deficit. The new projection will now set the tone for budget discussions at the Capitol, and according to a Pioneer Press report, Dayton will release a supplemental budget in March to account for the changed projection.
 
The revised estimate, released Thursday by the state’s Management and Budget office, also projects that the state will have a $295 million surplus for the 2012-2013 biennium that ends in June. State law requires $290 million of that money go to pay off part of the $1.1 billion the state owes schools in delayed payments.
 
Economists said in November that the budget forecast released then was more uncertain than usual because of the federal “fiscal cliff “debate ongoing at the time. According to a Star Tribune report, while the fiscal cliff agreement in early January removed a major threat to the economy, there are now concerns about the possible impact of sequestration and a partial federal government shutdown.
 
But state economists reportedly have said that Minnesota’s direct exposure to federal cuts under sequestration is among the lowest of all states; they estimate that sequester cuts would reduce Minnesota employment growth by no more than 5,000 jobs by the end of 2013.