12/11/2012 by Ron Brochu

PHOTO: Minnesota Revenue Commissioner Myron Frans, left, and State Sen. Roger Reinert.

Facing a projected $1.1 billion budget deficit, Minnesota government will closely watch its spending next year and likely revise the tax code, state officials said at a Tuesday Duluth Area Chamber of Commerce forum.

"The governor wants to force us all to be careful about how we spend money,"� said Revenue Commissioner Myron Frans, who noted the state has experienced eight budget deficits in the past 11 years. Gov. Mark Dayton "has repeatedly said we have to prioritize,"� he noted.

At the same time, the state should revise its system of taxing properties to ensure the burden doesn’t unfairly fall on one sector more than another, he said, noting it has shifted from residential to commercial property.

All changes must occur within the context of a weak economy, Frans stressed.

"We're very cognizant that we're in a delicate recovery and we don't want to jeopardize that," he said.

When the Legislature convenes Jan. 8, lawmakers must address a $1.1 billion deficit and the need to repay school districts $1.3 billion. That so-called public school payment "shift"� was approved in a 2011 budget deal after a statewide state government shutdown.

"There is a sense we have to get away from managing by crisis," Frans said.

"I think the Legislature has a lot of appetite for doing some big things" during the coming session, said State Sen. Roger Reinert, DFL-Duluth. With Democrats having majority control of both houses and in charge of the administrative branch, he said there's "a huge appetite to unwind the most grievous� policies" enacted when GOP Gov. Tim Pawlenty was in office.

"You can be assured there's an audience out there hungry to expand spending on whatever their favorite program is. I'm hearing from them. But from the Senate side, our number one priority is structural budget balance. We'll do a lot of managing expectations," Reinert said.

On the revenue side, collections are out of balance, Frans argued. In 2010, 40 percent of state and local government revenue was derived from property taxes, 34 percent from income taxes and 26 percent from sales taxes. A greater portion should come from the sales sector, he suggested.

"We'll need some movement in all of those areas, and we'll need some trade-offs,"� he said.

One shift may involve taxing more services. Frans noted that in 1960, 60 percent of consumer purchases were for goods. Today, 60 percent are for services.

"It may be a little painful at first, and some folks may not be real happy," Frans said, but projections indicate sales tax revenue is unlikely to grow unless the base is broadened.

The schedule to repay school districts is uncertain, said Frans, who admitted “that’s one of the hot items on our list.”

Income tax reciprocity between Minnesota and Wisconsin residents likely won't return until 2014, according to Reinert. He said the results of a thorough study won't be available until March, then lawmakers must study the matter and take action.

"We have to ensure Minnesota doesn't incur any revenue loss," he said.

Pawlenty discontinued the prior program because Wisconsin didn't pay Minnesota for a collection discrepancy on a timely basis.

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