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Latest forecast: Minnesota economy "sick"

Minnesota is looking at a projected $373 million deficit over the next 19 months, according to a budget forecast released Friday.
This gap, which Gov. Tim Pawlenty called “manageable,� comes after several years of surpluses.
If the present economic situation continues, lawmakers and the governor will need to seek out ways to fill in the shortfall – either through cutbacks, other sources of revenue or the use of reserves.
Pawlenty said the deficit, which barely over 1 percent of the state’s $34 billion budget, reflects an economic slowdown affecting the entire country. Economists blame high energy prices, break-even job growth, a deflated housing market and credit market trouble for decreasing Minnesota’s tax collections. Sales tax, corporate tax and taxes paid on mortgages and home deeds are all down, according to the forecast.
But Minnesota’s projected shortfall isn’t the worst we’ve had – consider 2003, when Minnesota lawmakers had to bail out a budget deficit of $4.6 billion.
The state also has about $1 billion in a cash account and reserves to depend on.
Even so, the forecast calls Minnesota’s economic outlook “very fragile,� with state economists adding that there is 35 percent change of a recession.
Capitol officials reacted to the deficit prediction with diverging proposals, with lawmakers and the governor calling for everything from an immediate special session to a tax-cut plan.
Since the state must have the budget balanced by mid-2009, lawmakers and the governor could technically wait to see where the economy turns before acting.
But policy-makers note the budget forecast’s prediction that the gap between revenue and spending is expected to stay around until at least 2011; they suggest quicker fixes.

The Pioneer Press:

The Star Tribune: