The budget gap: Rumors of $7 billion deficit projection hover over start of fiscal battles at Lege

For now, the official estimate of Minnesota’s budget deficit remains in the neighborhood of $5 billion, but no one at the Capitol takes that figure seriously anymore. We at PIM have been hearing for the past week-plus that the new number–which will be updated by the state department of Management and Budget in February–is expected to be around $7 billion.

That’s edging close to 25 percent of the entire budget, and it banishes once and for all any wishful comparisons between this year’s crisis and the $4.3 billion deficit gap of 2003, which was closed without tax increases thanks to $1 billion in tobacco settlement dollars and substantial bloodletting in areas where Minnesota once served as a model to the nation–health care and education.

Among the factors that are different this time around: There isn’t a billion dollars lying around to plug holes, and the future tax receipts picture is far more grim and more volatile. To put it another way, there is no guarantee that the state’s revenue estimates will not keep right on getting worse after the February revised forecast.

Gov. Tim Pawlenty is said by some to relish the opportunity for a full-on budget fight in which band-aids and incremental cuts are out of the question; he will show his hand next Tuesday when he officially presents his budget.

DFLers, meanwhile, are understandably loath to kick things off with a call for new taxes and fees, so they have couched their opening volleys in terms of high hopes for extensive federal aid to help bail out the ship. (It was the subject of the very first bill House and Senate Democrats introduced this session.) But it’s still unclear what the size of any federal aid package would be, and what strings may be attached in terms of the money’s use. They will have to pitch tax increases, and word around the Capitol is that Senate Majority Leader Larry Pogemiller (DFL-Minneapolis) has quietly assembled a group devoted to looking at possible approaches.

On Monday PIM will have an analysis of the long-range structural problems in the state budget, and Tuesday we’ll be covering the governor’s budget presentation.