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Budget Forecast: Time for New Revenue & Cuts

March 03, 2008 By Jeff Van Wychen, Fellow and Director of Tax Policy & Analysis

Excluding one-time federal recovery dollars, the state's revenue situation went from bad to worse with the release of the February forecast of state revenues and expenditures. Minnesota Management & Budget (formerly the Department of Finance) is projecting a structural budget deficit for the upcoming FY 2010-11 biennium of $6.4 billion (not including one-time federal dollars), up from the $5.5 billion projected in the November forecast. This deficit includes the impact of inflation on state revenues and expenditures.

The February forecast provides even further proof that Minnesota has a revenue problem.  After the additional decline anticipated in the next biennium, real per capita current resources for FY 2010-11 should be 16.3 percent less than in FY 2002-03.

The humongous state budget deficit is primarily the result of revenue decline, not state spending growth.  Despite the fact that significant new funding obligations have been shifted into the state general fund in the form of the total state takeover of K-12 general education, real per capita state spending has declined since the FY 2002-03 biennium. Since 2002-2003 real per capita revenues have fallen more rapidly than expenditures.


Federal recovery dollars will help resolve the budget deficit. Some spending reductions will also be necessary. However, given the state's budget problem is primarily the result of declining revenue, a general state tax increase should be part of the solution.

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