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State budget gap 'likely to grow'

Anticipating next month's forecast, State Economist Tom Stinson says future revenues are likely to flag.

By PAT DOYLE, Star Tribune

Last update: January 30, 2008 - 12:37 AM

State Economist Tom Stinson said Tuesday that a predicted $373 million state government budget gap is "likely to grow" because early indications are that future revenues will be less than predicted in November.

While Stinson cautioned that the state won't be able to make a good prediction until it releases its new economic forecast in late February, he added, "Almost certainly we're going to have less in the forecast than we had in November. And the question really is, just how much?"

Stinson made his remarks at a talk sponsored by Minnesota Council of Nonprofits in St. Paul. He pointed to slumping housing starts in the fourth quarter of 2007 and other measures in describing a state economy less healthy than the national economy.

He said Global Insight, the firm the state uses in putting together economic forecasts, was less optimistic in its January outlook than it had been in its November forecast. Even after the Federal Reserve cut a key interest rate by three-fourths of a percentage point to stimulate the economy, Global "reiterated their pessimistic outlook," Stinson said.

Gov. Tim Pawlenty's office did not respond immediately to the remarks. But in response to a Stinson assertion earlier this month that the state is in a recession, Pawlenty said Stinson "tends to be a bit on the pessimistic side of things," according to Minnesota Public Radio.

Sen. Tarryl Clark, DFL-St. Cloud, the assistant majority leader, said Tuesday that Democrats would reconsider advocating tax breaks, targeted use of state bonds and other measures to build projects quickly and create jobs that in turn produce tax revenue. "What we'll be looking to do is have the projects get going sooner than we would have," she said.

Stinson expressed skepticism that such plans would work. He said bond money provides no significant stimulus to an ailing economy because little of it is spent in the first year, when an infusion of money is needed to jump-start the economy.

"There really isn't a lot that state governments can do in terms of stimulus," he said.

The next economic forecast will be released Feb. 28, though Stinson said some better hints might emerge after December sales tax revenue -- including holiday spending -- and some January income tax figures become available in a few days.

He noted that while Minnesota's December unemployment rate of 4.9 percent was slightly lower than the national rate, "The problem is that, historically, Minnesota hasn't done just a little bit better than the U.S., Minnesota's done a lot better than the U.S."

Loss of construction jobs in Minnesota appears worse than elsewhere in the nation, he said, and the state ranks 36th in job growth.

Pat Doyle • 651-222-1210

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