Tax collections suggest bad news ahead in next revenue forecast

ST. PAUL (AP) -- Lower Minnesota tax collections in January suggest that despite an improving national economy, a projected state budget deficit is likely to be worse than originally expected.

Tax collections last month were down $72 million -- 5.3 percent -- from the levels predicted in the last revenue forecast less than two months ago. At that time, the deficit was projected at $1.95 billion for the current two-year budget cycle.

A new revenue forecast will be released in two weeks.

Tax collection totals reported this week to Gov. Jesse Ventura and legislative leaders indicated that holiday season retail sales and end-of-year bonuses paid to Minnesota executives fell short of earlier estimates.

Now some of those leaders, including some who once expected the revised February revenue forecast to erase part of the state's budget problems, are worrying the short-term deficit projected over the next 17 months will grow.

"There were maybe those who were hoping to be saved by a better forecast, and that's not going to happen," said House Majority Leader Tim Pawlenty, R-Eagan.

Senate Majority Leader Roger Moe, DFL-Erskine, said Thursday he expected the Feb. 27 forecast to project about the same $1.95 billion short-term deficit predicted in the last forecast. "I don't think we're expecting it to get a lot worse, or a lot better," Moe said.

Finance Commissioner Pam Wheelock, whose department prepares Minnesota's twice-a-year revenue and expense forecasts, said the state's budget woes aren't likely to go away with the revised forecast.

State economist Tom Stinson also refused to predict what the next forecast will say, but he said the January tax collections showed weaknesses in three key areas:

-- Retail sales taxes were down about $12.5 million.

-- Income taxes withheld from salaries and bonuses were down about $15 million.

-- Estimated income taxes paid by self-employed people and people who earn part of their income from investments and are required to pay some taxes quarterly were $66 million short of the level projected in the last forecast.

"At the end of the month, the first three things we look at -- they're all down," Stinson said.

Motor vehicle sales tax receipts, propelled by a boom in new car sales on zero-percent financing offers, were up $10 million.

Last week, three independent economists told the Senate Tax Committee that the economy is improving and that the current recession is turning out to be mild by historical standards.

November and December tax collections were about $3 million ahead of the totals that Stinson and the state Finance Department predicted in the last revenue forecast, but those two months also produced a decline in the income tax withholdings.

"Things aren't healing themselves," Stinson said of the tax receipts.

But the economic news is not all bad. Minnesota's revenue forecasts factor in not only past data on tax collections and employment, but predictions about future economic growth. The consulting firm the state uses for economic modeling is now predicting greater economic growth in 2002 than it was expecting when the last revenue forecast was released.