State budget deficit declines by $206 million

Minnesota’s budget gap narrowed in the economic forecast released this morning.

Lawmakers are now looking at a $994-million general fund shortfall for 2010-2011. That’s an improvement from $1.2 billion in red ink in last November’s economic forecast.

The deficit represents 3.2 percent of the state’s $31.1 billion in projected spending.

A much deeper problem lies ahead in 2012-2013. The projected shortfall in the out years increased by $363 million to $5.78 billion. Lawmakers, however, don’t have to pass a 2012-2013 budget until next year.

State Economist Tom Stinson said he thinks the economic recession is over. But several factors indicate a “long, slow recovery.”

“The real issue is…how fast the recovery is going to proceed,” Stinson said.

Compared to last November’s economic forecast, spending for the current biennium declined by $184 million and expected revenue went up by $25 million. The main source of the state’s spending decline was $83 million in health and human services savings from one-time health care money from the federal government.

Despite the revenue increase from last November, revenue is still down $1.1 billion from the estimates at the end of the 2009 legislative session last May.

Within the revenue numbers, individual income tax collections continued to worsen by $47 million from November. The income tax projection has dropped by $874 million since the end of the legislative session. Corporate income taxes have improved by $127 million since November.