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Don Davis, Published January 13 2009

Minn. deficit likely to get worse

ST. PAUL – Legislators haven’t started to balance the next Minnesota state budget, but they’re already being warned that the $4.85 billion deficit they face is nothing compared to what is coming.

“The problem, in fact, is going to get worse,” former state Finance Commissioner Jay Kiedrowski said.

Kiedrowski and Kevin Goodno, a former state representative from Moorhead and state human services commissioner, co-chaired a commission to make suggestions about how to handle future state budgets.

After meeting 14 times in the last year year, the commission on Monday recommended changes in the budget process, including increasing the rainy-day fund.

Regardless of any changes lawmakers make, they face the double-whammy of an aging population and declining tax receipts because there will be more retirees than workers. Those demographics will make future budgets even more difficult, Goodno and Kiedrowski said.

The commission’s report shows that the state’s population will age during the next dozen years and baby boomers’ “pending retirement will put an incredible strain on the state’s labor force.”

Policymakers have not prepared for the shift, the report says.

“Although little has been done to prepare for this demographic shift, it will have extraordinary implications for the state’s economic and work-force development policies, health care, economic assistance, social service and education programs,” it states.

In the 10 years ending 2015, the biggest population growth will come in the 55- to 69-year-old bracket, the report says.

Even with the aging population, the report suggests policymakers can deal with the budget by taking several steps, including changing how the state taxes its citizens.

The commission did not make a tax recommendation, but its two leaders said relying more on property taxes – and less on income and sales taxes – would make the system less volatile.

“There is no silver bullet” in the report, but said it lays out a path for the future, Goodno said.

Little in the report addresses the immediate deficit, which many expect to top $6 billion this winter.

Gov. Tim Pawlenty was forced to deplete the state’s budget reserve to fill a deficit in the budget ending June 30. In recent years, it has been a few hundred million dollars, but the report called for a reserve of at least $2.1 billion.

A $2.1 billion reserve is needed for the state to survive another economic slump like the recession it and most other states are going through, the report says.

The problem rests on the aging baby-boomer generation.

“The baby boomers are going to be retiring, and retirees pay less to the state than working people,” Kiedrowski said.

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Davis works for Forum Communications Co., which owns The Forum. He can be reached at (651) 290-0707 or ddavis@forumcomm.com