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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.

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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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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

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…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

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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

$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.

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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%

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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.

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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.

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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.

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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