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A weakening economy pushed the Minnesota budget into negative terrority again, as state financial forecasters on Friday predicted a $373 million shortfall by mid-2009.

The projection, in a report prepared by the state Finance Department, means lawmakers will search for ways to patch the gap during the next legislative session. A Capitol source briefed on the report gave the figure to The Associated Press on the condition of anonymity because it wasn't officially released yet.

The state Constitution requires a balanced budget by the end of the two-year budget cycle.

Like much of the nation, Minnesota's economy has taken a hit from the slumping housing market, higher energy prices and a struggling manufacturing sector. Unemployment rates are higher than they have been and predictions of future economic growth have been downgraded.

The November forecast helps calibrate expectations of state lawmakers as they put their plans together for the next year's legislative session. The economic report details tax and spending patterns, looking a few years into the future.

The timeframe that matters most to lawmakers is the next 18 months. In May, the Legislature finalized a $34.5 billion budget that runs through June 2009.

As they adjourned last spring, many lawmakers were hopeful they'd be able to return in the 2008 session with room to bump up spending for schools, state-sponsored construction and property tax buffer programs.

"People are going to have to take a step back again," Sen. Tarryl Clark, DFL-St. Cloud, said Thursday. She worried that Friday's report would be the "tip of the iceberg."

"The real question is what are we going to see by February," she said.

That's when the next economic forecast is due. Two are done each year. Quarterly budget reports only look at revenue.

By tradition, even-year sessions are focused mainly on assembling a long-term borrowing bill to pay for new college buildings, roof repairs at government offices, wastewater treatment projects and other public works construction.

But lawmakers are free to make budget adjustments, too. Whether they are cosmetic or far reaching depends on the signals in the budget forecast.

Gov. Tim Pawlenty said on WCCO-AM radio Friday morning that he was confident this budget situation would be "within a manageable range."

"We do have cushions and reserves built up," he said. Pawlenty was scheduled to hold a news conference Friday afternoon.

State lawmakers left about $300 million unspent during the last session and have restocked other reserve accounts to the tune of $1 billion. But they hesitate to dip too deeply into the rainy-day funds because it can harm the state's credit rating, which in turn make it more expensive to borrow for long-term construction.

The news is a reversal from the uplifting report presented last November. Then, finance officials announced a projected surplus just shy of $2.2 billion. That estimate mostly held up when the next edition was released in February.

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Associated Press Writer Martiga Lohn contributed to this report.

http://www.startribune.com/587/story/1583325.html