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State of Minnesota Economic Outlook: Implications for the System. Minnesota State Colleges and Universities January 4, 2010. Fiscal year 2010 budget gaps. Spending cuts as percentage of actions. Use of ARRA funds as percentage of actions. Fiscal year 2011 budget gaps.

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State of Minnesota Economic Outlook: Implications for the System

Minnesota State Colleges and Universities

January 4, 2010







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State of Minnesota forecast revenue: fiscal years 2010-2011 System

Source: November Economic Forecast, Minnesota Management and Budget, November 2009.



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Problems Remain for 2012-13 Biennium System

  • Assumes:

  • GAMC discontinued. Restoration adds $928 million.

  • K-12 Aid shift restored. Delay saves $1.167 billion.

  • No repayment of K-12 property tax recognition shift. Repayment would cost $562 million.

  • No discretionary inflation. Inflation at CPI (2.1 percent in 2012 and 1.9 percent in 2013) would increase spending by $1.179 billion.

Source: November Economic Forecast, Minnesota Management and Budget, November 2009.


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Economic/Demographic Environment Has Changed System

  • 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.


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Minnesota Faces a Fiscal Trap System

  • 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.


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2007-09 Recession Permanently Reduced the Base for Future Revenues

Source: “But…What About Tomorrow?”, presentation to LCPFP Balanced Budget Subcommittee, October 2009.


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Next 25 Years--State Revenue Growth Rate Projected To Slow Revenues

Budget Trends Commission, 2009


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From 2010 to 2020, Minnesota will Revenuessee large increases age 50s and 60s

Source: Minnesota State Demographic Center, rev 2007

Numbers are rounded


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Budget pressures will change -- Revenuesmore 65+ than school age by 2020

Census counts & State Demographer projection, revised 2007


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If state health care costs continue their current trend, state spending on other services can’t grow

General Fund Spending Outlook, presentation to the Budget Trends Commission, August 2008, Dybdal, Reitan and Broat


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How do we get out of this fiscal trap? state spending on other services can’t grow

  • 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.


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Impact to the Minnesota State Colleges and Universities state spending on other services can’t grow


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Higher education share of state’s budget state spending on other services can’t grow

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.


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State appropriation per FYE student state spending on other services can’t grow

During past decade, appropriation per FYE student has decreased $765 (16 percent); adjusted for inflation decrease is $1,759 (36.5 percent)

Fiscal year 2011 estimate includes unallotment.


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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: $5.426 billion to $8.095 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: $211.6 million to $315.7 million.

    • Solved with combination of spending cuts and tax increases: $105.8 million to $157.8 million.


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Minnesota state colleges and universities strategy budget

  • Revenue growth

    • Tuition increase greatest potential

  • Enrollment growth

    • Enrollment growth will pressure overall revenue outlook

  • Productivity


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System’s strategic focus 2010 Action Plan budget

  • Reaching the Underrepresented

  • STEM and Healthcare

  • Minnesota Online & e-Learning

  • Workforce of the Future

  • Organizational Change

  • Energy Conservation