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Federal stimulus money makes Minnesota deficit smaller

ST. PAUL - Minnesota budget writers are thanking Washington today as finance officials announce the state deficit actually dropped from what was expected - thanks to an economic stimulus package.

The deficit now is expected to be $4.57 billion in the two years beginning July 1 - out of a $33 billion budget - instead of the previously predicted $4.85 billion. Without the federally approved economic recovery money, however, the deficit would be $6.4 billion, according to budget documents leaked to reporters before this morning's official announcement.

Gov. Tim Pawlenty and other state leaders had predicted the deficit would be at least $6 billion, and could top $7 billion.

Federal money should mean the current budget will not go into the red, and a couple of million dollars could be left over in the state budget reserve, state finance officials are expected to announce.

State officials continue to figure out how they can use federal money, passed last month as a way to stimulate the nation's economy. Strings attached to the money have not all been sorted out.

Even with a smaller-than expected deficit, state officials have their work cut out for them. The $4.57 billion deficit means they have to either cut spending, raise taxes or do a combination of both. Even in past down economic times, state budgets have increased, not actually shrunk.