Rebounding economy trims deficit to $5 billion

Baird Helgeson and Rachel E. Stassen-Berger

Minnesota's rebounding economy lopped more than $1 billion off the state's multibillion-dollar deficit, likely to make life a little easier for legislators but not remove the budget-balancing sting completely.

State budget officials announced the new deficit number Monday as part of a larger revenue and economic forecast. Minnesota's deficit for the next two years now stands at $5 billion, according to those who were breifed on the economic forecast. The old projection placed the deficit at $6.2 billion.

While the new deficit figure shows a marked improvement, it still means, as expected, state lawmakers and the governor have a massive deficit to fill this year.

The legislative session will now swing into high gear as DFL Gov. Mark Dayton and Republicans who control the Legislature beat down the shortfall by the May 23 deadline for adjournment.

They must balance the books without federal stimulus money that propped up the budget the last couple years and knowing the state's reserves have run dry.

Economists say the economy has benefited from the tax compromise between President Obama and Congress that cut payroll taxes. The agreement is expected to result in more take-home pay and a cash infusion onto the sputtering economy.

The economic forecast won't do anything to calm the deep divide between Republican and DFL plans to balance the budget.

Dayton's budget proposal calls for more than $3.3 billion in tax hikes on high earners, a plan Republicans reject. Republican leaders have pledged to balance the budget solely through cuts, which if it holds, would be a depth of reductions never seen before in the state.

The session got off to a testy start when the newly-elected governor vetoed nearly $900 million in cuts proposed by Republicans, saying the reductions would have indirectly raised property taxes.

The governor has said he would consider curtailing some of his proposed spending cuts -- particularly to programs for the elderly -- or stocking up cash in the state's reserve fund if the new deficit forecast showed improvement. His budget plan, released earlier this month, closed a $6.2 billion deficit.