What a difference a year makes.  Last year, Minnesota was sitting on a $2 billion budget surplus.  Today Governor Tim Pawlenty announced that Minnesota is facing a projected budget deficit of $935 million. State revenues have slowed as both individual and corporate income tax collections have fallen. At the same time, state spending has increased. By all accounts, Minnesota is currently in a mild recession which is expected to last for at least the next six months.

 

Minnesota is required to balance its books every two years, suggesting that the state must now either cut spending or raise taxes. On the heals of the DFL-controlled state legislature just passing the single largest tax increase in the state’s history, Pawlenty was clear – he intends to cut spending.  “Raising taxes is not the answer to balancing our budget. Like families and businesses are doing in this tough economy, government needs to tighten its belt and live within its means. I will not allow this session to turn into a parade of DFL tax hikes", said Pawlenty.

 

DFL legislative leaders may have other plans. They announced at least two initiatives to raise new tax revenues: going after corporations that operate overseas and collect taxes on business executives who work in Minnesota but declare residency elsewhere. For now, however, DFL leaders appear to be holding off on re-introducing last year's proposal for an income tax rate hike. They appear wary to propose more tax increases given the intense negative public reaction to their massive transit tax increase that was just passed by an override of the Governor's veto.