The Minnesota State Colleges and Universities system is an Equal Opportunity employer and educator.
State of Minnesota
Economic Outlook:
Implications for the
System
Presented to Northeast Higher Education District
November 12, 2009
Slide 2
Fiscal year 2010 budget gaps
Slide 3
Spending cuts as percentage of actions
Slide 4
Use of ARRA funds as percentage of actions
Slide 5
Fiscal year 2011 budget gaps
Slide 6
Fiscal year 2012 budget gaps
Slide 7
State of Minnesota revenues below forecast: fiscal years 2010-2011
$ millions Estimate Actual Variance %
Individual $1,728 $1,635 $(93) (5.4)
Sales 874 854 (20) (2.3)
Corporate 129 182 52 41.1
Motor Vehicle 16 20 4 25.0
Other 372 376 4 1.1
Total $3,119 $3,067 $(52) (1.7)
Source: “But…What About Tomorrow?”, presentation to LCPFP Balanced Budget Subcommittee, October 2009.
Slide 8
State of Minnesota fiscal year 2010 Q1 revenues below fiscal year 2009 Q1
$ millions Estimate Variance % Yr Chg %
Withholding $1,398 $(27) (2.0) $(112) (7.6)
Indiv. Est. 290 (55) (18.9) (99) (29.6)
Gross Sales 924 (13) (1.4) (143) (13.6)
Corp. Est. 127 37 29.1 (15) (8.4)
Total $3,119 $(52) (1.7) $(359) (10.5)
Source: “But…What About Tomorrow?”, presentation to LCPFP Balanced Budget Subcommittee, October 2009.
Slide 9
Minnesota Is Facing Significant Long-Term Budget Problems
Slide 10
Problems Remain for 2012-13 Biennium
$ millions FY2012 FY2013 FY2012-13
Revenues $16,576 $17,729 $34,305
Expenditures 19,728 19,008 38,736
Difference ($3,152) $(1,279) $(4,431)
Assumes:GAMC Discontinued. Restoration adds $889 million.K-12 Aid shift restored. Delay saves $1.2 billion.No repayment of K-12 property tax recognition shift.No discretionary inflation. Inflation at CPI would increase spending by $1.3 billion.
Source: “But…What About Tomorrow?”, presentation to LCPFP Balanced Budget Subcommittee, October 2009.
Slide 11
Economic/Demographic Environment Has Changed
Short run economic cycle has merged with long run demographic cycle.
We have entered the Age of Entitlement—economic growth in the next 25 years will be about half what it was in the past 25.
State revenue growth will slow while spending pressures will accelerate.
This is a national/global issue.
Source: “But…What About Tomorrow?”, presentation to LCPFP Balanced Budget Subcommittee, October 2009.
Slide 12
Minnesota Faces a Fiscal Trap
The issue is a long run, structural one— short run solutions will not solve the problem.
Trend growth alone will not be sufficient. Fundamental changes are necessary.
Revenue growth will slow. Efforts to increase it will be met with resistance.
Spending pressures will increase driven largely by issues of aging and health.
State spending will shift its focus from education, infrastructure and higher education to care and support of the aging.
Source: “But…What About Tomorrow?”, presentation to LCPFP Balanced Budget Subcommittee, October 2009.
Slide 13
2007-09 Recession Permanently Reduced the Base for Future Revenues
Source: “But…What About Tomorrow?”, presentation to LCPFP Balanced Budget Subcommittee, October 2009.
Slide 14
Next 25 Years--State Revenue Growth Rate Projected To Slow
6.8%
3.9%
5.5%
3.4%2.8%
1.2%
0%
1%
2%
3%
4%
5%
6%
7%
8%
2001 2033
5 Y
ea
r C
om
pu
nd
Gro
wth
Ra
te
TotalPer CapitaReal Per Capita
Budget Trends Commission, 2009
Slide 15
From 2010 to 2020, Minnesota will see large increases age 50s and 60s
20,15036,190
47,3305,050
-30,680-9,980
47,95061,920
-2,680-63,650
-42,31054,240
102,960112,540
91,37041,400
8,44016,500
0-45-9
10-1415-1920-2425-2930-3435-3940-4445-4950-5455-5960-6465-6970-7475-7980-84
85+
Source: Minnesota State Demographic Center, rev 2007Numbers are rounded
Slide 16
Budget pressures will change --more 65+ than school age by 2020
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1950 1960 1970 1980 1990 2000 2010 2020 2030
18-24
65+
5-17
Census counts & State Demographer projection, revised 2007
Slide 17
If state health care costs continue their current trend, state spending on other services can’t grow
3.9%
8.5%
0.2%0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
Revenue Health Care Education & AllOther
An
nu
al
Av
e G
row
th 2
00
8-2
03
3
General Fund Spending Outlook, presentation to the Budget Trends Commission, August 2008, Dybdal, Reitan and Broat
Slide 18
How do we get out of this fiscal trap?
Revenue growth will depend increasingly on per capita economic growth.
Future economic growth will depend increasingly on increasing productivity and less on labor force size.
This plays to Minnesota’s historic strength.
Source: “But…What About Tomorrow?”, presentation to LCPFP Balanced Budget Subcommittee, October 2009.
Slide 19
Impact to the Minnesota State Colleges and Universities
Slide 20
Higher education share of state’s budget
Fiscal year 2011 estimate includes unallotment. Higher education includes the Minnesota State Colleges and Universities, the University of Minnesota, and the Minnesota Office of Higher Education.
Slide 21
State appropriation per FYE studentDuring past decade, appropriation per FYE student has decreased $765 (16 percent); adjusted for inflation decrease is $1,759 (36.5 percent)
Slide 22
Minnesota state colleges and universities share of state budget
The System’s share of the state budget is 3.9 percent.
State budget deficit for fiscal years 2012-2013: $4.431 billion to $7.248 billion (if other budget pressures such as GAMC, inflation, etc., are recognized).
The System’s share of the budget deficit:
Solved with spending cuts only: $172.8 million to $282.7 million.
Solved with combination of spending cuts and tax increases: $86 million to $141 million.
Slide 23
Northeast Higher Education District share of allocation framework
State appropriation flows through allocation framework
District’s percent share of framework
FY2005 – 4.42 percent
FY2010 – 3.49 percent
Key principles of allocation framework
Enrollment
Cost control – average instructional cost per FYE student
Slide 24
Minnesota state colleges and universities strategy
Revenue growth
Tuition increase greatest potential
Enrollment growth
Enrollment growth will pressure overall revenue outlook
Productivity
Slide 25
System’s strategic focus 2010 Action Plan
Reaching the Underrepresented
STEM and Healthcare
Minnesota Online & e-Learning
Workforce of the Future
Organizational Change
Energy Conservation