Saturday, December 6, 2008

Star Tribune: How Bad is Minnesota's Budget Deficit? Mega-Bad

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Thanks to a reader for sending this - I did not even have Minnesota as one of my 15 or so states which will need a federal bailout. [November 2008 Thoughts/Roadmap] I am sure many of you will read similar things about your own states in the months ahead - if you see something similar to this please forward it to me via email; I'd like to know what states our tax dollars are going to bail out before hand. Remember states budgets go from Jul 1 to Jun 30th so the real panic has yet to begin. Early summer is going to be a doozy of financial crisis headlines.

Now, based on Obama's glad handling with governor's a few days ago, the state budget emergency might not be solved via "bailout" as I originally anticipated - instead they might get the money via the $500B to $700B New Deal 2.0 that will be rolled out in early 2009. So the problem will be "solved!" that way. But that's just nomenclature. It's a bailout that might be reclassified as a stimulus. And then we'll be in the same boat in the following budget year (summer 2010 - summer 2011) So another bailout... err stimulus package... will be brewed by then.
  • Minnesota is headed toward a historic budget deficit that could rock state government -- and the people who depend on it -- down to its core. State budget officials will release a two-year economic projection today that is expected to show Minnesota facing a deficit of anywhere from $4.5 billion to as much as $6 billion. At the upper end, the red ink would equal nearly 17 percent of the state's total budget.
  • "This is without question going to be the worst deficit in modern history," said Senate Finance Committee Chairman Dick Cohen, DFL-St. Paul. "We're heading into a terrible storm, and we have nothing left to face it with."
  • The state's budget reserve stands at a wafer-thin $153 million -- about one-tenth of the minimum recommended amount -- and that is about to disappear as the state attempts to head off its most immediate crisis: a short-term deficit for the remainder of the current budget period, which ends on June 30.
  • "We can't tax our way out of this problem," said Senate Taxes Chairman Tom Bakk, DFL-Cook. "You cannot raise taxes by that much. You can't cut the state budget by that much, either. (no, what you do is ask for a federal bailout) I would argue that everything -- every spending program, every tax -- has to be on the table. This will require a major reprioritization of programs."
  • ...spending already authorized is expected to grow by 6.1 percent.
  • Health care, schools, prisons, road projects, local government aid, all could come under the budget knife in the coming months. "This isn't one of those things where you can tinker around the edges," Bakk said
  • Stinson stressed that the forecast was not a worst-case projection. "Things could be worse, they could be noticeably worse between now and the end of the biennium," he said.

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