The Minnesota State Colleges and Universities system is an Equal Opportunity employer and educator.

State of Minnesota

Economic Outlook:

Implications for the

System

Chief Finance and Facilities Officers Conference

January 27, 2010

Slide 2

Fiscal year 2010 budget gaps

Slide 3

Spending cuts as percentage of actions

Slide 4

Use of ARRA funds as percentage of actions

Slide 5

Fiscal year 2011 budget gaps

Slide 6

Fiscal year 2012 budget gaps

Slide 7

State of Minnesota forecast revenue: fiscal years 2010-2011

($ millions)End-of-Session

November Forecast $ Change % Change

Individual $14,927 $14,099 $(827) (5.5)

Sales 8,548 8,516 (32) (0.4)

Corporate 1,219 1,273 54 4.4

Motor Vehicle 92 99 7 7.7

Other 6,356 5,999 (357) (5.6)

Total $31,142 $29,986 ($1,156) (3.7)

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

Slide 8

Minnesota Is Facing Significant Long-Term Budget Problems

Slide 9

Problems Remain for 2012-13 Biennium

$ millions FY2012 FY2013 FY2012-13

Revenues $16,023 $17,195 $33,218

Expenditures 19,960 18,964 38,644

Difference $(3,657) $(1,769) $(5,426)

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.

Slide 10

Economic/Demographic Environment Has Changed

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.

Slide 11

Minnesota Faces a Fiscal Trap

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.

Slide 12

2007-09 Recession Permanently Reduced the Base for Future Revenues

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

Slide 13

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

6.8%

3.9%

5.5%

3.4%2.8%

1.2%

0%

1%

2%

3%

4%

5%

6%

7%

8%

2001 2033

5 Y

ea

r C

om

pu

nd

Gro

wth

Ra

te

TotalPer CapitaReal Per Capita

Budget Trends Commission, 2009

Slide 14

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

20,15036,190

47,3305,050

-30,680-9,980

47,95061,920

-2,680-63,650

-42,31054,240

102,960112,540

91,37041,400

8,44016,500

0-45-9

10-1415-1920-2425-2930-3435-3940-4445-4950-5455-5960-6465-6970-7475-7980-84

85+

Source: Minnesota State Demographic Center, rev 2007Numbers are rounded

Slide 15

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

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1950 1960 1970 1980 1990 2000 2010 2020 2030

18-24

65+

5-17

Census counts & State Demographer projection, revised 2007

Slide 16

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

3.9%

8.5%

0.2%0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

Revenue Health Care Education & AllOther

An

nu

al

Av

e G

row

th 2

00

8-2

03

3

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

Slide 17

How do we get out of this fiscal trap?

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.

Slide 18

Impact to the Minnesota State Colleges and Universities

Slide 19

Higher education share of state’s budget

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.

Slide 20

State appropriation per FYE studentDuring 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.

Slide 21

FY2011 system outlook

State support declines by $50-$60.5M to base of $606-$616M.

Tuition capped at 5 percent - revenue of $32M.

Compensation and other operating costs increase $57.3M.

Overall net gap of $40M (2.6 percent of expenses) across all college/universities.

Slide 22

FY2012-2013 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.

Slide 23

Minnesota state colleges and universities strategy

Revenue growth

Reasonable tuition increase greatest potential.

Enrollment growth

Enrollment growth will pressure overall revenue outlook.

Productivity/efficiency improvements

Slide 24

System’s strategic focus 2010 Action Plan

Board currently reviewing and updating:

Reaching the Underrepresented

STEM and Healthcare

Minnesota Online & e-Learning

Workforce of the Future

Organizational Change

Energy Conservation

Slide 25

Planning timetable

• FY2011 budgets to Board in April/May 2010.

• FY2012-2013 operating budget request development will begin in spring 2010.

• Consultation process on-going and flexible.

• Labor contract planning already underway.

• Feb 2010, Nov 2010 and Feb 2011 revenue forecasts before 2012-2013 budget decisions made.