Revenues down, worries up

Growth in the state’s revenues over the next 25 years is expected to slow.

That was the news State Economist Tom Stinson gave to the House Taxes Committee March 10.

“Revenues are not going to grow fast enough to keep up with health care spending,” he said while presenting only the revenue side of the February Forecast to the committee, something he said he’s never done before.

He said the state’s economy is growing a little more slowly than the U.S. economy, and its outlook worsened dramatically between the November 2008 and February 2009 forecasts. On just the revenue side, when the Legislature adjourned last May, the state had a projected $625 million deficit for the current biennium. For the 2010-11 biennium, the revenue deficit is projected to be $4.46 billion; this is due, in part, to a $2.45 billion expected decline in income tax collections.

“Just this amount of change since we adjourned, I just find amazing,” said Chairwoman Rep. Ann Lenczewski (DFL-Bloomington).

Stinson said a change of this magnitude has never happened, although in the early 1980s, he said things deteriorated very quickly and enormously, caused by two recessions and a change in the inflation rate.

The state’s revenue has declined because of several factors:

• we are in a recession;

• the state’s employment and wages are declining;

• nonwage income is declining, i.e. income from stock investments;

• taxable purchases are declining;

• corporate profits are declining; and

• the state’s General Fund is receiving a smaller percentage of the motor vehicle sales tax.

“What we need to recognize is that what this recession means is that business receipts are going to be less than in 2008,” Stinson said. “This is not something we’re used to seeing.”

It is also predicted that jobs are going to decrease by 3 percent in Minnesota in 2009 and another 1 percent in 2010.

“You can come at this from every angle,” Lenczewski said. “We have a huge problem. It doesn’t matter what the political approach is. This deficit is helping us all get a little taste of reality.”