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The dome of the Minnesota State Capitol.

State economic forecast: Projected deficit could affect U funding

Projected deficit could affect U funding

By Rick Moore

Originally published on December 3, 2004

On December 1, the Minnesota Department of Finance announced its latest economic forecast for the state, which projects a deficit of $700 million for the 2006-07 biennium--the two-year period that begins next July. Despite a modestly growing economy, as well as a projected surplus of $495 million at the end of the current 2004-05 biennium, the predicted deficit for 2006-07 has grown by $302 million since the state's last economic forecast.

The budget outlook in Minnesota can have a direct and dramatic effect on the University of Minnesota, which receives about 25 percent of its operating funds from the state. Following the $4.5 billion shortfall the state faced two years ago, the University saw its state funding cut by $185 million during the biennium.

While the current forecast may seem dour, there are some bright spots. Net revenue for the two-year period is expected to grow by 2.8 percent, with a boost of $280 million in income taxes. And the $700 million deficit, while certainly large, is a fairly small percentage of the overall 2006-07 state budget of $29.5 billion--especially given the $4.5 billion deficit the state faced two years ago.

"The good news is, the state budget for the current year is showing a surplus...," says Richard Pfutzenreuter, the U's chief financial officer. "The bad news is that revenue, and in particular job growth, in Minnesota is lagging behind the national growth rates."

Governor Tim Pawlenty called the $700 million deficit a "foothill" relative to the $4.5 billion "mountain" of two years ago. He also expressed concern at the Health and Human Services portion of the overall budget, which is projected to increase dramatically. "Our problem is not that revenues are lagging," Pawlenty states on the governor's Web site. "Our problem is that government health care, a portion of the Health and Human Services budget, is scheduled to grow by 27 percent in the next budget cycle. At that rate, it will devour the rest of the budget in the not-too-distant future."

Pawlenty also indicated that while wanting to curb the growth in government health care programs, the budget he submits to the legislature in January will address "some areas where the state needs to make additional investments--primarily education."

In its 2006-07 Biennial Budget Partnership Proposal, the University of Minnesota is seeking $42 million for each of the next two years in new funding from the state for investing in the biosciences; attracting and retaining talented students, faculty, and staff; and sustaining the U's research and technology infrastructure. How the state's overall budget climate affects the University's request remains to be seen.

"[The budget deficit] makes it more challenging for the governor to totally meet the needs of anybody--not just the University of Minnesota but anybody," says Pfutzenreuter. "And it points to the importance of the University community getting involved at the Capitol and making sure our voice is heard."

For further information about the University's 2006-07 biennial budget request, visit the Government Relations Web site. For more information on advocating for the U, visit the Legislative Network.

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