Tuesday, October 11, 2005

Budget, Pawlenty get boost

Contrary to what the DFLers, take Rep. Matt Taxenspenza for instatnce, in St. Paul would have you believe, Gov. Pawlenty’s fiscal policy is adding to the stability of Minnesota’s economy.

Minnesota gets $282 million budget boost
Dane Smith

Corporate-tax collections in Minnesota surged by nearly 50 percent in late summer over estimates, helping to boost overall quarterly revenues by $282 million and signaling a strengthening economy and perhaps fewer long-term budget woes ahead.

Gov. Tim Pawlenty issued a statement describing the Minnesota Finance Department's quarterly report as "positive economic news and it shows that Minnesota's economy has stabilized and is improving."

However, the report issued Monday also warned of short-term harm to the economy caused by Hurricanes Katrina and Rita.

Damage to the oil industry could create an energy shortage, higher prices, reduced consumer spending and a temporary decline in economic activity, the report said.

Pawlenty urged "caution for those who would use today's news to increase government spending."

The governor continued: "The extent of damage to oil-refining capacity, the timing of recovery from Hurricane Katrina and the impact of higher gas and heating bills this winter still loom on the horizon."

Although the state collected nearly $100 million more than expected in corporate taxes from July 1 through Sept. 30 -- nearly 48 percent more -- that tax accounts for only about 5 percent of the state's revenues.

Growth in personal income taxes, which accounts for about half the state's revenues, was much more modest, at $10 million, or 0.6 percent, above previous projections. The state's second-largest revenue stream, the sales tax, grew $34 million, or 3.7 percent, more than expected.

In all, the state's revenues increased by $282 million more than expected -- 8.9 percent.Almost half of that amount came in the "other" category, which included a huge windfall from a single estate-tax payment. The state collected $117 million more in estate taxes than expected in July, August and September. The three-month total exceeded estate-tax revenues collected in the entire preceding fiscal year that ended in June.

Start of a trend?

State officials have to wait many months for detailed tax records to gain insights into whether overall changes in collections are one-time events or the start of a trend. "A disappointing truth is that we won't know how Minnesotans' taxable income for 2004 turned out until early in 2006," Tom Stinson, Minnesota state economist, said in July.

At the time, state officials had just learned of a surprise $286 million increase in state revenues for the 2004-2005 fiscal year. But they were debating whether it was a sign of a lasting economic upturn for Minnesota or a short-lived phenomenon.

State income-tax revenues are notoriously volatile, reflecting ups and downs in corporate profits, changes in individual incomes tied to bonuses and profit-sharing, or even alterations in ever-changing tax laws.

That unpredictability was reflected in the differences between expected tax revenues and actual collections in July through September. Individual income-tax collections were less than 1 percent above what state economists had forecast. In contrast, corporate-tax collections were up 47.6 percent.
(Source: Star Tribune, Oct. 11, 2005)

A trend?! This just gets better and better for Pawlenty.


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