ST. PAUL, Minn. (AP) — After years of surpluses, Minnesota will face a $188 million budget deficit next year due to slowing economic growth nationwide and the Legislature’s recently passed budget, according to an economic forecast released Tuesday.
The budget shortfall runs through the state’s current two-year budget cycle that ends in 2019, reflecting the ramifications of a new $46 billion budget that boosted public school spending and cut taxes by roughly $650 million. State economic officials projected the state would face a $586 million gap by 2021 if the Legislature doesn’t correct course.
The initial estimate comes with major caveats, including the unknown impact on the economy of Congress’s yet unsettled push to slash taxes by more than $1 trillion. State officials, including Democratic Gov. Mark Dayton and top lawmakers, were expected to address the deficit Tuesday afternoon.
The deficit would end an economic hot streak for Minnesota, where lawmakers have enjoyed budget surpluses since 2013. How the state might handle the projected deficit would likely remain unclear for months.
Given the uncertainty surrounding taxes in Washington, D.C., Dayton said Monday that he won’t lay out any budget plans for 2018 until at least March — after Minnesota gets an updated readout on its fiscal situation.
The Republican-controlled U.S. Senate narrowly passed a $1.5 trillion tax bill over the weekend that would reshape the tax code — cutting individual rates, slashing corporate taxes and potentially leaving states with a drastically different economic picture. The debate over tax breaks now heads behind closed doors for House and Senate negotiators to agree on a final package, with President Donald Trump pushing to get a bill signed by Christmas.
“It’s not going to factor in any of the provisions (of a tax bill) which nobody knows about, including the members that voted for it,” the Democratic governor said of Tuesday’s forecast.
But the forecast did factor in the 2017 Republican Legislature’s actions, including a major funding bump for the state’s public schools and a package of $650 million in tax breaks, including big tax reductions for wealthy estate owners, Social Security recipients and college savings plans.
Dayton is entering his final year in office in 2018, looking to cement his legacy of boosting early childhood education options and improving the state’s water quality. And lawmakers are facing major questions about financing the state’s array of health care offerings when they return on Feb. 20.
But beyond the fiscal questions and constraints, Dayton and Republicans who control the Legislature will enter 2018 with relations at an all-time low after a long and expensive legal battle over Dayton’s decision to zero out House and Senate operating budgets. The Minnesota Supreme Court ruled that veto was constitutional last month.
Dayton said the long feud with Republicans wouldn’t change his legislative wish list.
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