1. 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

2. Slide 2 Fiscal year 2010 budget gaps

3. Slide 3 Spending cuts as percentage of actions

4. Slide 4 Use of ARRA funds as percentage of actions

5. Slide 5 Fiscal year 2011 budget gaps

6. Slide 6 Fiscal year 2012 budget gaps

7. 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) Sales8,5488,516(32)(0.4) Corporate1,2191,273544.4 Motor Vehicle929977.7 Other6,3565,999(357)(5.6) Total$31,142$29,986($1,156)(3.7) Source: November Economic Forecast, Minnesota Management and Budget, November 2009.

8. Slide 8 Minnesota Is Facing Significant Long-Term Budget Problems

9. Slide 9 Problems Remain for 2012-13 Biennium $ millionsFY2012FY2013FY2012-13 Revenues$16,023$17,195$33,218 Expenditures19,96018,96438,644 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.

10. 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.

11. 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.

12. 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.

13. Slide 13 Next 25 Years--State Revenue Growth Rate Projected To Slow Budget Trends Commission, 2009

14. Slide 14 From 2010 to 2020, Minnesota will see large increases age 50s and 60s Source: Minnesota State Demographic Center, rev 2007 Numbers are rounded

15. Slide 15 Budget pressures will change -- more 65+ than school age by 2020 Census counts & State Demographer projection, revised 2007

16. Slide 16 If state health care costs continue their current trend, state spending on other services can’t grow General Fund Spending Outlook, presentation to the Budget Trends Commission, August 2008, Dybdal, Reitan and Broat

17. 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.

18. Slide 18 Impact to the Minnesota State Colleges and Universities

19. 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.

20. Slide 20 State appropriation per FYE student During 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.

21. 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.

22. 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.

23. 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

24. 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

25. 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.