business

Leaders at the Capitol who must wrestle down a massive budget deficit are cautiously optimistic that Minnesota has started to pull itself from the death grip that clamped down on the nation's economy.

Everyone from the governor to top lawmakers expect the economic forecast that will be released Tuesday to show that, at the very least, Minnesota's economic picture hasn't deteriorated over the winter.

The revenue and spending snapshot will lock in a new deficit number so lawmakers can get cracking on the real work of the legislative session -- balancing the state budget. The forecast last November pegged the shortfall at $1.2 billion for the remainder of the biennium, prompting calls for deep cuts in nearly every corner of state government, particularly programs that serve the sick and the poor.

"There's a hope and a prayer" that things are getting better, said House Minority Leader Kurt Zellers, R-Maple Grove. "I think we'll be in under $1 billion, I hope."

That still leaves a lot of cutting to do.

"Whatever the forecast shows won't resolve the very serious budgetary problems we have," said Senate Majority Leader Larry Pogemiller, DFL-Minneapolis. "It might be a little better; it might be a little worse. But no matter what, we are going to have to cut $1 billion to $1.2 billion."

The state's economic engine hasn't stalled, thanks to a steady trickle of federal stimulus dollars, economists say. As the economy sputters to life, medical services and education are leading the way, and agriculture is turning around a bit, too. Construction, particularly in home-building, should also begin to pick up.

"It's definitely getting better," said Mohammad-Qamar Siddiqui, a senior principle with IHS Global Insight, which provides national economic data to the state.

Those looking for signs of better times can point to a caveat-laden January revenue statement, which showed the state took in $46.8 million, or 3.6 percent, more in tax revenue than expected for the month. Collections on individual income taxes, corporate income taxes and sales taxes were all stronger than predicted.

A decent month does not constitute a recovery, but "that's a good sign," said Minnesota Management and Budget Commissioner Tom Hanson.

A projected uptick in Minnesota State Lottery revenue might help pull the state budget out of the muck, as well.

Don Feeney, research and planning director for the lottery, said lottery officials predict a modest increase in lottery sales but wouldn't give an exact amount until the forecast.

The lottery took in $480 million last year, of which about $120 million went into state coffers, Feeney said. Minnesota was one of only about six states where lottery ticket sales increased last year.

The lottery's newest game, Mega Millions, should result in another $11 million in sales, Feeney said. It's not clear exactly how much of that will go to the state.

Federal stimulus helped

State economist Tom Stinson warns, however, that the state is still losing jobs. The Twin Cities and St. Cloud experienced the worst job losses, while Rochester and southwestern Minnesota have fared better, he said.

Since the recession began, the state has lost 45,000 manufacturing jobs and 25 percent of construction employment.

"If you look at manufacturing and construction, you see some pretty dismal situations," Stinson said.

The state will begin adding jobs by March or April, he said.

Overall, 7.4 percent of Minnesotans were unemployed in December, far below the national average.

"The outlook is not as gloomy as it was last year at this time," Stinson said. "The real question is: How fast do things grow and how long does it take to get us back to where we were before the beginning of recession?"

The state has burned through half of the $5 billion in federal stimulus cash heading its way, so far preserving or creating 10,303 jobs, according to the state budget office.

Over the next three years, the stimulus money will create or preserve 94,000 jobs in the state, Siddiqui said. The federal money will account for 75 percent of all new jobs during the recovery.

"The stimulus is estimated to help the state greatly," Siddiqui said.

Gov. Tim Pawlenty, a possible presidential candidate and a vocal critic of the stimulus program, said he worries the state could slide back into recession if the private sector hasn't rebounded when the deluge of federal money cuts off.

"By the time the government money runs out, you've got a real problem," he said. "You set yourself up a mouse trap. There's debate about the mouse trap scenario, but if it hits, it would be 2011 or 2012."

Said Stinson, the state economist: "Unfortunately, we aren't going to know until we know."

Baird Helgeson • 651-222-1288