4/25/2013

Minnesotas Revenue Problem

Presentation to

The Civic Caucus

May 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.

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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.
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Measuring the Problem Examine general fund revenue adjusted for: Inflation Population growth
Things arent so bad if we ignore inflation and population growth
General Fund Current Resources
Nominal Dollars Billions
$45

$40

$35

$30

$25

$20

$15

200001

200203

200405

200607

200809

201011

201213

201415

201617

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but a meaningful comparison over time requires that both be taken into account.
General Fund Current Resources
Average Annual Amount in Constant FY 2013 Dollars Per Capita
$3,900 $3,800 $3,700 $3,600 $3,500 $3,400 $3,300 $3,200 $3,100 $3,000 $2,900

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

200001

200203

200405

200607

200809

201011

201213

201415

201617

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

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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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Spending Reductions
Adjusted Annual General Fund Spending in Constant FY 2012-13 Dollars Per Capita: FY 2002-03 to FY 2016-17
$4,200 $4,000

$3,800

$3,600

$3,400

$3,200

$3,000 FY 2002-03 FY 2004-05 FY 2005-07 FY 2008-09 FY 2010-11 FY 2012-13 FY 2014-15 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.

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Daytons original budget will not increase Minnesotas Price of Government.

Minnesota "Price of Government": 1991 to Projected 2017
18.0% 17.5% 17.0% 16.5% 16.0% 15.5%

Dayton Budget
15.0% 14.5% 14.0% 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 08/FY 09 CY 09/FY 10 CY 10/FY 11 CY 11/FY 12 CY 12/FY 13 CY 13/FY 14 CY 14/FY 15 CY 15/FY 16 CY 16/FY 17

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.

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Daytons revised budget will recapture only a portion of Minnesotas revenue loss.
General Fund Current Resources: Current Law vs. Gov.s Revised
Average Annual Amount in Constant FY 2013 Dollars Per Capita $3,900 $3,800 $3,700 $3,600 $3,500 $3,400 $3,300 $3,200 $3,100 $3,000 $2,900 200001 200203 200405 200607 200809 201011 201213 201415 201617

Governors 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.

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Daytons revised budget will restore only a portion of Minnesotas spending decline.
Adjusted Annual General Fund Spending in Constant FY 2012-13 Dollars Per Capita: FY 2002-03 to FY 2016-17
$4,200

$4,000

$3,800

$3,600

Revised Dayton Budget

$3,400

$3,200

Current Law

$3,000 FY 2002-03 FY 2004-05 FY 2005-07 FY 2008-09 FY 2010-11 FY 2012-13 FY 2014-15 FY 2016-17

BOTTOM LINE
Minnesota can afford a modest revenue increase in the 2013 budget.

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To view MN 2020s recent spending report, Crumbling Fiscal Foundation, go to: http://tinyurl.com/alf23k8 To view MN 2020s general fund revenue analysis, go to: http://tinyurl.com/bkaems6

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