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Associated Press, Published December 02 2010

UPDATED: Minnesota's projected deficit nears $6.2 billion in 2012-13

ST. PAUL, Minn. (AP) — Minnesota's financial outlook offers a brighter picture in the short run before a wallop down the road, with a projected deficit growing to just shy of $6.2 billion for the two-year budget lawmakers must set in 2011, state officials said Thursday.

The updated forecast includes a $399 million surplus for the budget period that closes in June. But things turn sour later, when the massive deficit sets in. The shortfall represents about 16 percent of the state budget.

"We have some very significant, structural deficit problems in the upcoming years," said Steve Sviggum, the interim commissioner of the Department of Minnesota Management and Budget. "We've kind of played all the cards that are available. There are very few cards left to play."

Given the new partisan alignment at the Capitol — the GOP will control both legislative chambers and a Democrat is likely to be governor — there is no smooth path to fixing it. Republicans are pressing to cut spending to right the budget while Democrats say new taxes need to be part of the solution.

Democrat Mark Dayton, who ran for governor on a tax-the-rich platform, leads Republican Tom Emmer pending the conclusion of a statewide recount of the race. Dayton planned to discuss the budget at a news conference later Thursday, as did the incoming legislative leaders.

State revenues are expected to climb by $1.5 billion, or 5 percent. But the state's spending commitments are on course to rise by $8.3 billion, or 27.5 percent. If all those obligations were funded, the state budget would grow to $38.6 billion for the 2012-13 fiscal years. Part of the disparity is the result of IOUs coming due for delayed payments to schools and to the expiration of federal stimulus dollars, which propped up state programs over the past couple of years.

Some of the extra spending is also attributable to population growth, such as a higher number of students in public schools and more people relying on subsidized health care programs.

The deficit projection comes with controversy. Republicans argue that the number is overblown because it includes automatic increases in programs such as public health care. Democrats counter that the real figure may be higher because inflation isn't factored in — adding $1 billion more to the shortage, according to the official documents.

Lawmakers and the governor use the twice-yearly projections of tax collections and spending patterns to set the state budget. Forecasted deficits lead them to cut spending, raise fees, take accounting maneuvers and fight over tax increases, while projected surpluses can result in tax cuts and spending increases.

The 2011 legislative session will focus on setting a two-year state budget that starts in July and runs through June 2013. This time, they won't have the massive federal stimulus package to fill in some of the holes. They've also mostly exhausted their menu of accounting moves, such as draining the rainy-day fund and delaying nearly $2 billion in payments to school districts.

Another economic forecast is due by early March.