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State Representative Jeanne Poppe
100 Rev. Dr. Martin Luther King Jr. Blvd.
651-296-4193
For more information contact: Sandy Connolly 651-296-8877
NEWS COLUMN
STATE BUDGET DEFICIT PRESENTS CHALLENGES
This week, the State Department of Finance released their February budget forecast. As was anticipated, the deficit our state is facing has worsened. As we move into the next biennium, we are looking at a projected $935 million deficit, about three times the deficit that was announced in November. State Economist Tom Stinson said the three major factors contributing to this deficit are the weakening housing market, the tightening credit market and rising energy costs.
It is clear this deficit will present challenges for our state moving forward, but what does a $935 million deficit really mean to our state? To help answer that, I thought it might be helpful to look at the entire state budget a little more closely. The percentages included below have not been updated to reflect the forecast released this week, but were updated after the November, 2007 budget forecast.
For the 2008-09 biennium, our entire state budget is approximately $34 billion. Close to half of the revenue coming into the state coffers is from individual income tax, with another quarter coming from the sales tax. Corporate taxes make up just under 6%, and the remaining sources are as follows: statewide property taxes: 4.3%, health impact fee: 1.3%, tobacco payments: 1.1%, motor vehicle sales tax: 0.9%. The remaining percentages come from other unnamed revenue and tax sources. In the last budget cycle, we did a good job of leaving some money in the bank, as well in the reserve account, as well.
The February forecast projected declining state revenues, with the biggest change coming in the income tax category – although not due to declining wages, as we might expect with the lagging job market, but rather as a result of lower non-wage income, such as capital gains and a weaker stock market. This drop in capital gains income accounts for 75% of the decline in revenues. Our state revenues are down also due to a small change in the amount of sales tax that is coming in, and increased corporate income tax refunds.
The other half of the budget, of course, is spending. Where do we spend over $34 million a year? The largest percentage of our state budget, just under 40%, goes to E-12 education. Higher education gets just over 9%, and our Health and Human Services budget accounts for 28% of our annual budget. The other major allocations are property tax aids and credit: 9%, public safety: 5.4%, debt service: 2.6%, state government: 1.9%, environment and energy: 1.3%, economic development:1.1%, agriculture and veterans: 0.5%, and transportation: 0.7%.
According to Stinson, the current deficit is not the result of increased spending, as that remained pretty constant. There were modest increases in K-12 education and health and human services spending. The education increases are due to a revision of pupil estimates, and most of the health and human services increase resulted from shifting money that was previously held in reserve to assist counties with medical assistance case management because of federal funding cuts.
The budget deficit cuts close to $1 billion out of the spending detailed above; this will undoubtedly present some challenges for lawmakers as we craft the next two-year budget. Because our state is mandated by law to balance our budget, some cuts will be necessary. We will work hard to protect the gains we made in the 2007 budget, and hold harmless our schools, seniors and health care programs. Tax fairness will be another issue in the budget talks, as we work to close corporate tax loopholes and prevent Minnesota companies from unfairly hiding domestic profits in foreign counties.
Our top priority moving forward will be to create jobs. In just the last six months of 2007, we lost 23 thousand jobs – meaning our job growth was zero for the year. This is the worst job decline since the 2001 recession, and is hurting our families, businesses and state economy. The recent transportation bill we enacted will create 33 thousand jobs every year for the next five years, and the pending bonding bill will create another 10 thousand jobs. We will also strive to increase our investments in education, and the rapidly changing bioscience and biofuels industries. An educated and advanced workforce is key to our long - term economic health and stability.
Please continue to contact me with your suggestions and feedback. I can be reached by phone at 1-888-682-3180 or 1-651-296-4193, by mail at 487 State Office Building, 100 Martin Luther King Blvd., St. Paul, MN 55155 or via e-mail at rep.jeanne.poppe@house.mn. If you would like to stay more closely in touch with what is happening at the legislature, visit my website at http://www.house.mn/27B or the House of Representatives website at www.house.mn.
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