Budget Bites: Big change in deficit number doesn’t mean our budget troubles are over

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[Editor’s note: In an effort to help inform our members about state and federal budget issues, Minnesota Environmental Partnership is working with the Minnesota Budget Project to cross-post updates about the budget.]

When the state’s February forecast was released Monday morning, the news was surprising: Minnesota’s budget deficit for FY 2012-13 had fallen from $6.2 billion to $5.0 billion (or $6.0 billion if the cost of inflation is included). Although the change is important, the added boost in economic growth will not fully solve our state budget problems.

Where does the $1.6 billion improvement come from?

* The February forecast shows that the surplus in the current biennium, FY 2010-11, has grown by $264 million since November, mostly because the implementation of early expansion of Medical Assistance will start on March 1, not January 1 as assumed in the November forecast. That $663 million surplus carries forward and helps reduce the deficit in FY 2012-13.

* Revenues for FY 2012-13 have grown by $887 million since the November forecast. Almost all of that growth is the result of projected increases in the income tax and sales tax.

* There is also a very small net decline – $9 million – in state expenditures for FY 2012-13.

The $5.0 billion deficit in the current biennium equals 13 percent of general fund spending. The state also faces a $4.4 billion deficit for FY 2014-15 – or $7.1 billion with inflation – down from $5.1 billion in the November forecast.

The change in the forecast picture is mostly the result of stronger economic growth stemming from tax and unemployment insurance changes made by the federal government last December.

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Minnesota Budget Bites is a blog for the Minnesota Budget Project, an initiative of MEP member group, Minnesota Council of Nonprofits.

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