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Economic outlook still grim
By: Sen. Steve Murphy
Posted: Tuesday, December 8, 2009 10:51 pm
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Over the past few months, there’s been an upswing in the financial markets. A lot of people are hoping that this will bring an end to our economic recession — there was even a point when the stocks were rallying that I started to think that this was possible. However, when presented with economic forecasts, trends, and job numbers, I’m again convinced that it is going to be a long and bumpy road to economic recovery.

The Legislature recently received the news that Minnesota’s revenue collections are already $223 million lower than what had been projected for this year. And the projections weren’t optimistic — remember the $6.4 billion budget deficit we were facing going into the biennium. These revenue shortfalls show that the economy is doing worse than we originally thought.

To make up for this cash flow shortage, the Department of Finance has already delayed payments of tax refunds to Minnesota businesses. Earlier this month, the state delayed $128 million in corporate tax refunds to 461 companies, and $11.9 million in sales tax refunds to about 350 businesses. As a result, these businesses won’t get the money they’ve been counting on until late December — creating problems with their own finances.

The Department of Finance also told the Legislature that Minnesota may be forced to borrow money to make up for this shortfall. Along with the financial instability that comes from needing to borrow just to pay the bills, this short-term borrowing can reduce Minnesota’s credit rating, making future borrowing for capital improvements more expensive.





Beyond that, Minnesota’s unemployment numbers for October were just released and they show that our rate has increased to 7.6 percent. This is up 0.3 percent from September. Nationally, the unemployment rate is 10.2 percent. And these figures don’t even paint a complete picture of the labor market, as many people are not counted. Folks whose unemployment benefits have expired and who have become too discouraged to keep looking for a job are not included. People who have taken part-time work to help pay the bills, but still are looking for a full-time job, are counted as employed. So while the numbers look bleak, the reality of our state and nation’s job market is even worse.

Minnesota’s November Forecast will be released in the near future — one of two economic reports given to lawmakers each year. It’s estimated that this forecast may predict a budget deficit of over $7 billion for 2011 — even larger than the historic deficit we faced this year.

Resolving a shortfall of that level will be a challenge of epic magnitude, given the drastic budget cuts that have already been made. There is no more low-hanging fruit, and we won’t have a federal stimulus package to again help us patch some holes. Though the Legislature passed a budget that was balanced and sustainable in the long-term, the governor refused to accept it. He instead opted to use more one-time cuts through unallotment and deplete the state’s cash reserve. As we can see now, with the state being forced into borrowing — this wasn’t a real solution. Lots of hard decisions are going to have to be made.

I don’t mean to be the bearer of negative news. I just wanted to be upfront about the fact that economic indicators show we are not out of the woods yet.



State Sen. Steve Murphy can be contacted by mail at 325 State Capitol, 75 Rev. Dr. Martin Luther King, Jr. Blvd., St. Paul, MN 55155-1606; by e-mail at sen.steve.murphy@senate.mn; or by phone at 651- 296-4264.
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By: MD on 12/9/09
I guess the only realistic solution is to increase taxes by 7 BILLION dollars, since we cant seem to get our budget under control.


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