Even though Minnesota continues to cut spending, its budget deficit continues to grow. And that means little possibility of restoring drastic service cuts made in the current budget.

The latest budget forecast from the state finance department shows revenues will continue to fall short of expenses until at least 2006. The forecast, released Wednesday, projects that Minnesota will end up with a deficit of $185 million in its current two-year budget.

Finance Commissioner Dan McElroy called the figure a mere ?speed bump? compared with a deficit of more than $4 billion the state faced when the budget was crafted this past spring. Both he and Gov. Tim Pawlenty say they will not raise taxes to erase the newest deficit.

That refusal to increase revenue makes it nearly impossible to restore spending in areas that are cut severely in the current budget, said Marcia Avner, public policy director for the Minnesota Council of Nonprofits and one of the leaders of ?Minnesota is Watching,? a coalition of more than 80 labor, nonprofit, faith and community groups.

?Any deficit is trouble right now because we?re operating at such a low base,? she said.

?What this means is we keep in place the 15 percent cut we made to the university,? said Wayne Cox, executive director of Minnesota Citizens for Tax Justice. ?We keep in place all these huge cuts we made to all these people in the human services area.?

McElroy said he would consider suggestions to restore some spending cuts. But proponents ?need to make a strong case,? he said, then identify what they would cut instead to get their money.

Avner cringes at that suggestion. ?We are not the least bit interested in pitting immigrants against seniors, and young people against people with disabilities,? she said. ?That?s not the way a state that cares about quality of life is going to solve its problems.?

One-sided approach isn?t working
The failure of the deficit to go away suggests that union leaders and allies in the Minnesota is Watching coalition are correct in arguing that the state must consider a balanced, rather than one-sided, approach to its budget problem.

?Revenues are giving us a challenge,? McElroy acknowledged at a Capitol news conference. The latest forecast expects revenues to land $407 million short of the projections that were made only five months ago.

The projected shortfall more than doubles ? to $914 million ? for the two-year budget after that. The shortfalls occur despite assumptions that the state?s economy will grow at least 4 percent in each of the next two years.

And deficits could grow even worse; projections fail to factor inflation into any state spending.

Since last spring, the Minnesota is Watching coalition has advocated some spending cuts while restoring targeted taxes, particularly on corporations and high-income households, which benefited most from tax reductions during the late ?90s. Minnesota cut taxes five straight years ? from 1997-2001 ? and led the nation in tax cuts over that period.

?They really need to go back and reclaim that revenue,? Cox said. ?How is it a higher priority for the state to have the top 1 percent enjoy a $5,000 a year income-tax cut ? and that?s what they get ? and in the process inflict taking away health-care coverage for tens of thousands of Minnesotans??

Spending cuts are deeper than expected
Instead of a balanced approach, Pawlenty and the Republican-dominated House pushed through ? with minimal DFL opposition ? what they called a ?no new taxes? budget, which runs through June 30, 2005.

The ?no new taxes? label is not quite accurate: The a $28.1 billion budget does increase what citizens and businesses must pay ? primarily through $406 million in higher fees and other direct charges. It also shifts additional costs onto county, municipal and school property taxes.

But the governor and Legislature erased most of the deficit ? and re-established a half-billion dollar budget reserve ? by cutting $2.1 billion in spending, primarily from education and health and human services; taking $1.4 billion in one-time money from the tobacco endowment and other dedicated funds; and shifting $727 million through accounting gimmicks, according to House Fiscal Analysis.

Among spending cuts are the elimination of 1,160 full-time-equivalent state jobs in the three months from July through September, the finance department says. In fact, in the first five months of the budget, overall state spending actually is down more than projected ? $143 million more, the finance department says.

McElroy called the projected deficit ?manageable? and predicted the governor will make further ?adjustments? in spending or ask the Legislature to tap into budget reserves, which now stand at $631 million. He said Pawlenty would make specific proposals after the next budget forecast and after the Legislature returns to session. Both occur in February.

?One thing we will not do is raise taxes,? Pawlenty said in a statement.

Nonetheless, the projected deficit continues to grow, and the ongoing decline in revenue remains the main reason. The state expects to receive $387 million less from individual income taxes, and $127 million less from sales taxes than it projected just five months ago. The forecast blames the shortfall in both areas on the fact that ?projected U.S. wage growth has been reduced substantially.?

In addition, President George W. Bush?s latest federal tax cuts will deprive Minnesota of an estimated $103 million in revenue. The brightest spots in revenue are an estimated $140 million more in state taxes on corporate profits, and $16 million more in taxes on new vehicle sales.