Wednesday, December 02, 2009
General fund revenues are now forecast to fall $1.156 billion (3.7 percent) below earlier estimates for the 2010-11 biennium. After adjusting for actions taken by the Governor following the legislative session, general fund expenditures are $44 million lower. When combined with a $91 million reduction in the ending balance from FY 2008-09, a budget deficit of $1.203 billion is now projected for FY 2010-11. About 70 percent of the projected deficit is due to a reduction in expected income tax receipts.The loss in revenues is pinned on mostly a fall in wages (income from interest and capital gains "changed little".) The previous forecast was drawn in up February, was little changed from the November 2008 forecast except for the calculation of the effects of the Obama stimulus. Nine months between forecasts in this environment is an eternity, and there was no way anyone expected even this summer that the number wouldn't revise down by a billion or so. So I don't think this report is a shock or a sign that the economy is any more terrible than what I thought it was yesterday.
On the other hand, a new hand is dealt to the Legislature and Governor Pawlenty. They will be having press conferences in a while and we can expect DFL legislators to start their call for asking the rich to pay their fair share. Public employee union leader Eliot Seide was on the radio this morning (I listened during the Morning Show) saying the rich only pay 2/3 of their fair share and that getting the right amount from the rich would add $3.8 billion to revenues. For the life of me I can't figure out where either number comes from; what's this "fair share" he keeps talking about? Meanwhile, the governor is offering to talk to legislative leaders saying he doesn't want to use unallotment again. But having demonstrated he is willing to do it and not running for re-election, he undoubtedly feels he bargains from a position of strength. If you thought end of session in May was fun, pop some corn and settle in. This could be a hoot.
A couple of other quick notes while talking state budget. I did read this profile of state economist Tom Stinson and its effort to make him a pain in Governor Pawlenty's side. The article creates controversy where one doesn't exist, and the reporter was calling for weeks trying to dig up dirt on this topic according to people I spoke with. Tom's doing his job; everyone knows he tends to "go low" with the revenue figure, since the cost of underpredicting revenue is a lot lower than the cost of overpredicting (as we will now see; but the overprediction is certainly not an error made by the Minnesota Finance staff. Very few of us had 10% unemployment forecasts back in February.) The only shock in that article that I saw was Tom's age. I thought he was younger.
The other thing is this decision to list a separate estimate of inflation in the out-biennium forecast. I don't like it, I never have, and I wish they would stop it. You cannot assume a cost that doesn't yet exist. The decision to spend a public dollar takes a vote; it is not implied by previous decisions as taxes are.