State's financial forecast: Calm for the moment, but economic storm clouds gathering

State revenues were higher than expected through September, so Minnesota will have an extra $449 million in the bank. But that's only going to be a cushion when the current financial hammer hits in the months to come, state officials said today.

For perspective, the state projected earlier this year that it would have a $949 million deficit for the 2010-11 biennium, which the Legislature will begin addressing early next year.

That forecast – which will be updated in December – came long before the economic meltdown this fall, so it's going to be worse. But that $449 million should help a little, said Finance Commissioner Tom Hanson at an afternoon economic update.

More money than expected came in from income tax withholding receipts, but revenue from the state sales tax was lower than anticipated.

The credit crunch, too, already taking its toll on state financial planning.

State officials said they had planned to sell $443 million in general obligation bonds this month to provide money for road and other building projects. But there's no market for competitive municipal bond sales at the moment because of the credit crunch.

So, the state will hold off for a while, and if the market doesn't improve, officials say they will wait until early 2009 for the sale.

That won't affect pending building projects, though, because there's a $200 million surplus left from the summer bond sale, they said. And if that runs out, the state can borrow from other funds until the bonds are sold.

Here are other interesting tidbits from today's economic update:
•    Lottery revenues were below estimates in fiscal 2008 and are way below estimates so far this fiscal year. State economist Tom Stinson didn't speculate about the reason for the drop.
•    Estate tax revenues are running 15 percent above estimates since July.
•    Investment income, not surprisingly, has been far below estimates.

Joe Kimball reports on St. Paul City Hall, Ramsey County politics and other topics. He can be reached at jkimball [at] minnpost [dot] com.