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4/25/2013
1
Minnesota’s Revenue Problem
Presentation to
The Civic CaucusMay 3, 2013
Jeff Van Wychen
Director of Tax Policy & Analysis
Minnesota 2020
www.mn2020.org
During most of the
1990s and into 2001,
the economy was
booming and the state
had large surpluses.
4/25/2013
2
Response:• Temporary tax rebates (Jesse checks)
• Permanent income tax reductions
• Buy down of general education levy
• State takeover of general education
property tax
• State takeover of operating transit
costs
Along came the 2001
recession and the
subsequent “jobless”
recovery, followed by
the Great Recession.
The party was over.
4/25/2013
3
Examine general fund
revenue adjusted for:
• Inflation
• Population growth
Measuring the Problem
Things aren’t so bad if we ignore
inflation and population growth…
$15
$20
$25
$30
$35
$40
$45
2000-
01
2002-
03
2004-
05
2006-
07
2008-
09
2010-
11
2012-
13
2014-
15
2016-
17
Bil
lio
ns
General Fund Current Resources Nominal Dollars
4/25/2013
4
…but a meaningful comparison over time
requires that both be taken into account.
Average Annual Revenue Per Capita,
FY 2000-01 to FY 2006-07: $3,734
Average Annual Revenue Per Capita,
FY 2010-11 to FY 2016-17: $3,203
$2,900
$3,000
$3,100
$3,200
$3,300
$3,400
$3,500
$3,600
$3,700
$3,800
$3,900
2000-
01
2002-
03
2004-
05
2006-
07
2008-
09
2010-
11
2012-
13
2014-
15
2016-
17
General Fund Current Resources Average Annual Amount in Constant FY 2013 Dollars Per Capita
The revenue problem:
• Real per capita general fund
revenue from FY 2010-17 will be
14% less than from FY 2000-07
• Real per capita general fund
revenue in next biennium will be
at a 20 year low, excluding the
biennium of the Great Recession
4/25/2013
5
Response:
•“Shifts and gimmicks”
•Spending reductions
Shifts and gimmicks
• School aid payment delays
• School levy recognition shift
• Liquidation of endowments
• Sale of tobacco bonds
• Removal of inflation from
budget forecasts
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6
Spending Reductions
$3,000
$3,200
$3,400
$3,600
$3,800
$4,000
$4,200
FY 2002-03 FY 2004-05 FY 2005-07 FY 2008-09 FY 2010-11 FY 2012-13 FY 2014-15 FY 2016-17
Adjusted Annual General Fund Spending in Constant FY 2012-13 Dollars Per Capita: FY
2002-03 to FY 2016-17
Solving the Problem
• Do not need to return to the
real per capita revenue levels
of the 1990s…
• …but some increase in state
revenues is reasonable and
affordable.
4/25/2013
7
Dayton’s original budget will not increase
Minnesota’s “Price of Government.”
14.0%
14.5%
15.0%
15.5%
16.0%
16.5%
17.0%
17.5%
18.0%
CY
90
/FY
91
CY
91
/FY
92
CY
92
/FY
93
CY
93
/FY
94
CY
94
/FY
95
CY
95
/FY
96
CY
96
/FY
97
CY
97
/FY
98
CY
98
/FY
99
CY
99
/FY
00
CY
00
/FY
01
CY
01
/FY
02
CY
02
/FY
03
CY
03
/FY
04
CY
04
/FY
05
CY
05
/FY
06
CY
06
/FY
07
CY
07
/FY
08
CY
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/FY
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CY
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/FY
10
CY
10
/FY
11
CY
11
/FY
12
CY
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/FY
13
CY
13
/FY
14
CY
14
/FY
15
CY
15
/FY
16
CY
16
/FY
17
Minnesota "Price of Government":
1991 to Projected 2017
Dayton Budget
Current Law
Over the next four years, the “Price of
Government” under the original
Dayton budget will…
• …average 15.5%, slightly less than
over the previous four years (15.7%).
• …be slightly less than the average
during the Pawlenty years.
• …be much less than the average
during the 1990s.
4/25/2013
8
Dayton’s revised budget will recapture only
a portion of Minnesota’s revenue loss.
$2,900
$3,000
$3,100
$3,200
$3,300
$3,400
$3,500
$3,600
$3,700
$3,800
$3,900
2000-
01
2002-
03
2004-
05
2006-
07
2008-
09
2010-
11
2012-
13
2014-
15
2016-
17
General Fund Current Resources: Current Law vs. Gov.’s Revised Average Annual Amount in Constant FY 2013 Dollars Per Capita
Governor’s Revised
Budget
Current Law
By FY 2016-17, real per capita general
fund revenue under the revised Dayton
budget will…
• …be 3.8% higher than in FY 2012-13
(less than 1.0% growth annually).
• …recapture less than 30% of the
revenue loss since FY 2006-07.
• …still be at the lowest level in 20
years, excluding post-Great Recession
biennia.
4/25/2013
9
Dayton’s revised budget will restore only a
portion of Minnesota’s spending decline.
$3,000
$3,200
$3,400
$3,600
$3,800
$4,000
$4,200
FY 2002-03 FY 2004-05 FY 2005-07 FY 2008-09 FY 2010-11 FY 2012-13 FY 2014-15 FY 2016-17
Adjusted Annual General Fund Spending in Constant FY 2012-13 Dollars Per Capita:
FY 2002-03 to FY 2016-17
Revised Dayton Budget
Current Law
BOTTOM LINE
Minnesota can afford a
modest revenue
increase in the 2013
budget.
4/25/2013
10
To view MN 2020’s recent spending
report, “Crumbling Fiscal Foundation,”
go to: http://tinyurl.com/alf23k8
*To view MN 2020’s general fund
revenue analysis, go to:
http://tinyurl.com/bkaems6