The reasons behind the deficitby Tom Weber, Minnesota Public Radio
The nearly $1 billion state budget deficit projection is a clear sign that state government is struggling financially. It's come about because many Minnesotans are facing tough times.
St. Paul, Minn. — There's a big empty room in Katherine Toghramadjian's house in the northern Twin Cities suburbs, which is awesome for her four kids who play in there.
"We have a lot of fun in there," she said.
Thing is, it's supposed to be a living room. You know, with furniture and stuff.
"We bought a new house, unfortunately a year and a half ago at the top of the market, and have planned to furnish that house as we are able," said Toghramadjian. "Our living room is going to be sitting empty for the foreseeable future because of that."
Toghramadjian and her husband are not in dire straits, but money has gotten tighter in recent months. So, purchases like a new sofa were delayed.
And Thursday's budget forecast indicates the Toghramadjians aren't the only Minnesotans putting off purchases.
Sales tax, like the one paid on a new sofa, is one of the many taxes now predicted to come in at an even slower pace than the one predicted last year by the state's top bean-counters.
If the Toghramadjians were to go shopping, one of the stores they could go to is Room & Board, a Minneapolis-based chain with stores in Minnesota and four other states.
Sales are down about 2% this year at the Edina Room and Board, according to Mark Miller, the company's chief financial officer.
"I think furniture is probably one of the very first things that people do -- they have a choice," he said. "They look at the furniture they have and say, 'We can live with that for another year. There's no need to make an immediate change,'"
"So it is something that is seen in a cycle like this, and also something we'd see picking up very early on the way out."
Miller says company leaders saw a slowdown in the Midwest coming last quarter, so there haven't been any surprises, which means no need for emergency layoffs.
That means, for now, Room & Board is sending about the same money in employee income tax to the state, but it's writing smaller checks for sales tax.
Aside from the furniture delay, the Toghramadjian family is also cutting spending by taking fewer weekend trips to other parts of Minnesota.
That means less gas bought (less gas tax paid), fewer hotel stays (less hotel tax paid), and not as many souvenirs (less sales tax paid).
And investing also plays a key role in the state's declining fortunes.
Individual income tax revenues are projected to fall more than 313 million dollars... Compared to the November forecast.
And most of that decline is from lower capital gains, which are the gains made from selling securities at a profit.
That mirrors falling stock prices on Wall Street, where the S&P has lost 8 percent of its value since the state's last forecast was made in November.
Part of the reason for Katie Toghramadjian's penny-pinching is that she works in the construction industry, which has been slow.
But she expects that to pick up after this week's vote by lawmakers to raise taxes to pay for new roads.
Toghramadjian says the decisions to live within her family's means also leave her optimistic for the future. Still, finances take a back seat to family.
"It's not about the numbers that are coming out today. It's really about who you go home to and who you spend your time with, and supporting those priorities," said Toghramadjian. "And, it might not be a flat-screen TV or a sofa in the living room."
- All Things Considered, 02/28/2008, 5:44 p.m.