Thursday, December 4, 2008

A billion here, a billion there starts to add up.

The state of Minnesota is facing a $5.2 billion budget deficit over the next two and a half years. The previous whopper of a state budget deficit was $4.2 billion in 2003. I've heard a legislator say that in the following two year budget cycle they're looking at another $4.6 billion budget deficit. In other words, there are major structural spending problems facing our state.

The Star Tribune noted Tom Hanson, Finance Commissioner's comment that spending has been growing very rapidly while at the same time tax revenues are dropping.

Tom Hanson, commissioner of state management and budget, said revenues will be $579 million below forecast for the biennium beginning in July, while spending already authorized is expected to grow by 6.1 percent. He said the revenue decline is expected to be greater than during the budget woes of 2003.

The state's economist said things could get worse, making this the worse recession since World War II. I wonder if he should have said the 1930s.

State economist Tom Stinson painted a dire picture of the recession driving the deficit, predicting it would be "similar to that of the worst recession since World War II," referring to a downturn in the 1980s. He described "massive losses of wealth," and an economic terrain that is "just plain ugly."

"This could be the worst economy in 25 years," he said. "It could be the worst since World War II."

Stinson warned against expecting a quick recovery, noting that more people are closer to retirement now than during the downturn of the 1980s, and therefore would likely save new earnings rather than spend it, slowing any recovery.

Stinson stressed that the forecast was not a worst-case projection. "Things could be worse, they could be noticeably worse between now and the end of the biennium," he said.

As with any crisis it may also be an opportunity both personally and corporately. Going through cancer earlier this year forced me to look at what's of first importance in life and death. (You realize life is short however long one lives on this earth.) So too with a financial crisis, we'll need to reexamine personal priorities and make financial cutbacks. At the same time, as a society we'll need to re-examine how we do business. Should government take over responsibility for more and more areas of life or will we realize that we need to start caring for one another in our families, neighborhoods, churches, and communities and not just look to the government.

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