1. Long Term Revenue Outlook 2008-2033 Tom Stinson John Peloquin August, 2008

2. Minnesota Population Growth Rates by Age Cohort, 2005-30

3. Method Economic assumptions from Global Insight’s Spring 2008 Trendlong Scenario Used existing models for the income tax and sales tax Income tax model adjusted to reflect changes in age structure Age growth projections provided by state demographer’s office Current revenue forecast used through 2011

4. 5 Year Average GDP Growth Rates from GII Trendlong Scenario % Change 5 Year Compound rate

5. Population 16 and Over Percent Change By Decade

6. Projected Labor Force Growth Rates to 2010, 2020, 2030; BLS, GII, and State Demographer

7. Labor Force Participation Rates Age 16-64; Selected Years, BLS, GII, and Minnesota

8. Labor Force Participation Rates Age 65+; Selected Years, BLS, GII, Mn

9. Percent Change in Population Age 65+ by Decade; BLS, GII, Mn %

10. Forecasting Income Tax Liability HITS model revised to include 30 age classes: 15 working, 15 not working Liability estimates required two runs First run -- used just age growth variables Second run -- adjusted blow-ups to hit target for total income in each income type Minnesota per capita income for each type of income assumed to grow at the US average rate

11. Forecasting Sales Tax Liability Used growth rates for 20 types of sales Assumes that Global Insight has incorporated demographics appropriately in national consumption forecast U.S. growth allocated to Minnesota based on income, wages, and employment Revenue elasticity of.95 used, consistent with February forecast Remote sales growth slows to US average by end of forecast horizon

12. Forecasting Other Revenues Corporate – Based on growth in domestic corporate profits – Profit is a residual (GII uses it to balance the national income and product accounts) – Profit forecast prepared using Hodrick Prescott filter Other – Analysts’ judgment about proper factor to use. Many grown at CPI growth rate

13. Other Items Income tax estimates prepared on five year intervals Sales tax estimates and corporate tax estimates prepared on annual basis Most other revenue estimates prepared on five year basis Values for intervening years obtained through interpolation Historical revenue data from fund balances

14. 5 Year Compound Growth Rates Income Tax

15. 5 Year Compound Growth Rates Sales Tax

16. 5 Year Compound Growth Rates Corporate Tax

17. 5 Year Compound Growth Rates Other Revenues

18. 5 Year Compound Growth Rates Total Revenue

19. 5 Year Compound Growth Rates Total Revenue and Per Capita Revenue

20. 5 Year Compound Growth Rates Total W/Out MVEST

21. 5 Year Compound Growth Rates Alternative Corporate Tax

22. 5 Year Compound Growth Rates Total With Alternative Corp

23. 5 Year Compound Growth Rates Total W/out P Tax & Tobacco Money

24. 5 Year Compound Growth Rates 2001, 2033 Total and Per Capita Revenues

25. Understanding the State and Local Government Price Deflator Measures inflation for goods and services purchased by state and local government – Includes salaries, equipment, energy and services Does not measure inflation in government spending since transfer payments are excluded

26. 5 Year Compound Growth Rates 2001, 2033 Real Per Capita Revenues

27. 5 Year Compound Growth Rates 2001, 2033 by Type of Revenue 20012033 Total Revenue6.773.95 S/L Implicit Deflator2.642.18 Income Tax Revenue7.424.62 Sales Tax Revenue5.562.85 Corporate Tax Revenue0.764.14 Other Revenues9.192.90

28. Compound Growth Rates 2008-2033 Total and Per Capita Revenues

29. Compound Growth Rates 2008-2033 Income Tax

30. Compound Growth Rates 2008-2033 Sales Tax

31. Compound Growth Rates 2008-2033 Corporate Tax

32. Compound Growth Rates 2008-2033 Other Revenues

33. Cycle Scenario Shows Slightly Slower GDP Growth By 2033

34. Sensitivity Analysis Compound Growth 2008-32-1 Percent-2 Percent BASELINE3.77 Portfolio3.733.69 Pension3.713.66 IRA3.753.74 Business3.703.65 Social Security3.743.72 All3.543.36 Capital Gains (+1%, +3%)3.823.96

35. Sensitivity Analysis AlternativeCompound Growth 2008-33 BASELINE3.77 Wages @ Cycle3.55 Sales @ Cycle3.67 Wages and Sales @ Cycle3.44 Worst Case (2% non wage income)2.99

36. Other Alternatives Compound Growth Rate 2008-2033 BASELINE3.77 Social Security Exempt3.63 Pensions Exempt3.51 Pensions and Social Security Exempt 3.35 Working Family Credit Constant Share of Liability 3.73

37. 5 Year Compound Growth Rates Total Revenues

38. 5 Year Compound Growth Rates 2001, 2033 Real Per Capita Revenues