Budget and Economic Forecast

February 28, 2018

Minnesota Management and Budget | mn.gov/mmb 1

OverviewBalanced Budget Now Projected for FY 2018-19

• Near-term economic outlook improved

• $329 million surplus now projected for FY 2018-19

• Modest positive balance continues into the next biennium

• Forecast reflects federal action

Minnesota Management and Budget | mn.gov/mmb 2

Budget Forecast for FY 2018-19

FY 2018-19

($ in millions)

Beginning Balance Revenues Spending Cash & Budget Reserves Stadium Reserve

Forecast Balance

Nov 2017 Feb 2018 $ Forecast Forecast Change

$3,333 $3,333 $0 44,447 44,801 353 45,955 45,789 (167)

1,958 1,958 0 55 58 2

$(188) 329 $518

Minnesota Management and Budget | mn.gov/mmb 3

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Near-Term U.S. Outlook Improved

Real Gross Domestic Product Annual Percent Change November 2017

3

2

1

0

2.9

1.5

2.2 2.5

2.2 2.1 2.0

2.9

1.5

2.3

2.7 2.7

2.1 1.9

2015 2016 2017F 2018F 2019F 2020F 2021F

February 2018

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U.S. Consumer Spending Growth Higher in 2018 and 2019

Real Consumer Spending Annual Percent Change

4

3

2

1

0

3.6

2.7

3.6

2.7 2.5

2.2 2.2

2.7

2.3

2.7 2.9

2.4 2.1 2.1

2015 2016 2017F 2018F 2019F 2020F 2021F

November 2017 February 2018

Unemployment Rate Monthly, Seasona lly Adjusted

CJ

--

State Unemployment Rate Remains Below U.S.

= U.S. Recession

4.1

2.5

3.8 3.1

0%

2%

4%

6%

8%

10%

12% U.S.

Minnesota

Minnesota is 10th Lowest Among States (December 2017) 8+ Years

1990 1995 2000 2005 2010 2015

6

+1.5%

+1.5%

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High Demand for Workers, Low Unemployment in Minnesota

0

50

100

150

200

250

2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q

'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

Unemployment

Job Vacancies

Minnesota Labor Market Indicators Thousands

Revenue Forecast Improved in FY 2018-19

FY 2018-19

($ in millions)

Individual Income Tax General Sales Tax Corporate Franchise Tax All Other Revenue

Total Revenues

Nov 2017 Feb 2018 $ Forecast Forecast Change

$23,690 $23,715 $25 11,144 11,263 119

2,466 2,596 131 7,148 7,226 78

$44,447 $44,801 $353

Minnesota Management and Budget | mn.gov/mmb 8

Forecast Risks

• Taxpayer response to federal tax cuts

• Economic impact of late-cycle fiscal stimulus

• Global growth and trade policy

• 16 months remaining in biennium

Spending Forecast Lowered for FY 2018-19

FY 2018-19

($ in millions) E-12 Education Property Tax Aids & Credits Health & Human Services Debt Service All Other

Total Spending

Nov 2017 Feb 2018 Forecast Forecast Forecast Change

$18,889 $18,835 $(54) 3,648 3,656 8

13,871 13,618 (254) 1,143 1,138 (5) 8,404 8,542 138

$45,955 $45,789 $(167)

Minnesota Management and Budget | mn.gov/mmb 10

Structural Balance Projected for Next Biennium

($ in millions)

Forecast Revenues

FY 2020-21

$48,136

Projected Spending

Structural Balance

$47,823

$313

Estimated Inflation (CPI from 2.1 to 2.8%) $1,224

Biennial Annualized % Growth Growth

$3,335 3.7%

$2,034 2.2%

Minnesota Management and Budget | mn.gov/mmb 11

Minnesota’s Economic Fundamentals Remain Strong

• Economy and wage income continue to grow

• Minnesota’s unemployment rate is below the U.S. rate

• Positive balances this biennium and the next

Minnesota Management and Budget | mn.gov/mmb 12