FY 2010-11 BIENNIAL BUDGET

STATE OF MINNESOTAGovernor Tim Pawlenty

All budget documents can be found at www.mmb.state.mn.us

A Lot Has Changed in Two Years

• Current budget was set on May 30, 2007 with an agreement for a $34.6 billion biennial budget

• Economy was growing at 2.1%

• 2,771,400 Minnesotans had jobs

• Federal budget deficit was $161 billion (1.2% of GDP)

A Lot Has Changed in Two Years

• Today we are preparing the next budget based on revenues of $31.9 billion

• Economy is expected to shrink by 2.5%

• 2,720,400 Minnesotans have jobs

• Federal budget deficit is $1.2 trillion (8.3% of GDP)

Governor Pawlenty’s Budget Principles

• Balance the budget

• Fund priorities in order of importance

• Strategically position Minnesota for success in a changing world

• Enhance and expand pay for performance

• Don’t increase burdens by raising taxes

Important Financial Management Goals

• $250 million in budget reserves to address additional economic risk

• $350 million in cash flow account

• Understate potential level of federal fiscal assistance until finalized

• Improve structural budget – reduce 2012-13 budget gap by nearly half

Budget Bottom Line

General Fund Expenditures

FY 08-09 $34.36 billion

FY 10-11 $33.61 billion

Difference -2.2% ($750 million)

Governor’s Budget Solution: $4.8 billion deficit

Shortfall for FY10-11 ($ millions) ($4,847)

Spending Cuts, Savings 2,521

Other Resources 3,197

Tax Cuts, Initiatives, Reserve (860)

Total Recommendations $4,858

Balance $11

Budget Solution: Spending Cuts, Savings

Proposed Changes ($ millions): Impact

Permanent Spending Cuts $2,368

Health Care Access Fund & other 153

Subtotal $2,521

Budget Solution: Other Resources

Proposed Changes ($ millions): Impact

Federal stimulus placeholder $920

K-12 payment shifts 1,294

Tobacco appropriation bonds (net) 983

Subtotal $3,197

Budget Solution: Tax Cuts, Initiatives, Reserve

Proposed Changes ($ millions): Impact

New Spending Initiatives $323

Tax Cuts

Budget Reserve

287

250

Subtotal $860

Governor Pawlenty’s Top Budget Priorities

• Enhance Minnesota’s job climate

• Improve K-12 education

• Protect state public safety programs

• Maintain military and veterans programs

• Increase government reform and accountability

Minnesota Jobs Recovery Act

• Job creation is the priority

• Improve Business Climate• Reduce Minnesota’s high business tax rate

• Upfront capital equipment sales tax exemption

• Reinvestment Tax Credit

• One-year deduction for equipment purchases

• Angel and early stage capital tax credits

• 50% capital gains exemption

Transforming K-12 Education

• Increase K-12 funding, even in a budget crisis

• Transform K-12 education funding system by linking all future funding increases to improved performance

• Require all districts and charter schools to use Q Comp performance pay system

K-12 Education Reforms: Q Comp

• 44 school districts and 26 charter schools currently in Q Comp professional development and achievement-based pay program

• For districts not currently in Q Comp, authorize permanent per pupil funding increase of $300, an amount comparable to a 5% increase in the general education funding formula

K-12 Education Reforms: Pay for Progress

• New “Pay for Progress” initiative will link additional K-12 funding increases to student achievement

• School districts and charter schools will receive up to an additional 2 percent per student on the general education formula for students meeting standards or showing reasonable progress toward achievement

General Fund Spending$33.611 Billion

Governor’s Proposed FY10-11 Budget

All Operating Funds Spending$57.648 Billion

Proposed FY10-11 All Funds Budget

FY08-09 vs. Proposed FY10-11

($ millions) FY 08-09 Gov 10-11 % Chg.

K-12 Education* 13,797 14,059 1.9

Higher Education 3,099 2,845 (8.2)

Local Aids, Prop. Tax Credits 3,062 2,897 (5.4)

Health & Human Services** 10,328 11,324 9.6

Debt Service/Capital Projects*** 883 114 (87.1)

All Other Omnibus areas 3,919 3,555 (9.3)

* For comparability, excludes K-12 shift savings

** For comparability, reflects HHS Combined General and Health Care Access Funds

*** Reduction reflects general fund costs to be paid by tobacco appropriation bonds

Forecast vs. Proposed FY10-11 Budget

($ millions) Forecast

FY10-11

Governor

FY10-11

% Chg.

K-12 Education* 13,903 14,059 1.1

Higher Education 3,158 2,845 (9.9)

Property Tax/Local Aids 3,419 2,897 (15.3)

Health & Human Services** 12,627 11,324 (10.3)

Debt Service/Capital Projects*** 1,097 114 (89.6)

All Other Omnibus areas 3,620 3,555 (1.8)

* For comparability, excludes K-12 shift savings

** For comparability, reflects HHS Combined General and Health Care Access Funds

*** Reduction reflects general fund costs to be paid by tobacco appropriation bonds

Plan Substantially Reduces FY 2012-13 Gap

Forecast Governor

($ millions) FY12-13 FY12-13

Revenues 34,558 35,367

Spending 39,162 37,903

Projected Gap $(4,604) $(2,536)

Health Care Programs

Preserve coverage for childrenObtain better value

Tie chemical dependency spending to performance Secure better placement process for vulnerable children through Northstar Care for Children program Strengthen provider standards and controls on authorization of personal care attendant services

Health Care Programs

Reduce provider payments Hospital payments Long term care providers

Consolidate programs and simplify eligibility requirements No more expansions in Health Care Access Fund while General Fund cannot support existing programs

Reduce eligibility for parents in Medical Assistance to 100% Federal Poverty LevelMaintain limited state safety net program for single adults

County Services Reform

Incent counties to consolidate and share servicesConsolidate administered programs to 15 regional systemsImprove consistency, service options, and predictability for participating countiesDesigned to save money and to improve efficiencies and services

Technology

Deliver services that the public expects Expand number of licenses available online Strengthen and improve state data centers Finish building an integrated tax system Replace outdated accounting and procurement system

Match enterprise IT costs with longer term benefits

Minimal Use of Fees and Revenues

Minimal fee increases in the General Fund

Tobacco Appropriation Bonds

Creates nearly $1 billion in one-time funds to soften revenue shortfallEqual to roughly 50% of tobacco payments – little state riskProvides one-time funding for non-operating obligations

Federal Stimulus Package

Assumes $920 million in direct state aidUnderstates potential amount, providing a cushion for the February forecastBudget will be updated once federal legislation knownAssume new federal money will be spread across FY09-11

Governor’s Cuts in FY 2009, Proposed FY 2010-11 Actions Solve the Deficits

($ millions) FY08-09 FY10-11

Beginning Balance $2,245 584

Revenues 32,700 33,638

Spending 34,361 33,611

Cash Flow Acct 350 350

Budget Reserve 0 250

Balance $234 $11

ALL BUDGET DOCUMENTS CAN BE FOUND AT

WWW.MMB.STATE.MN.US

FY 2010-11 Biennial Budget