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General Fund Revenue Near 20 Year Low

April 10, 2013 By Jeff Van Wychen, Fellow and Director of Tax Policy & Analysis

As the result of the Great Recession combined with ten years of “no new tax” policies, real per capita state general fund revenue hit a twenty year low in the FY 2010-11 biennium. A modest increase in real per capita revenue during the current biennium is expected to be followed by another dip in the upcoming FY 2014-15 biennium. These sobering facts provide further proof that Minnesota does indeed have a revenue problem.

During the first four biennia of the last decade (FY 2000 to FY 2007), state general fund revenue hovered in the neighborhood of $3,700 to $3,800 per capita, averaging $3,734 over the entire eight year span. Revenue took a sharp dive during the next two biennia (FY 2008 to FY 2011). Revenue reached its low point during the FY 2010-11 biennium at just under $3,100 per capita.

To get a meaningful comparison of the change in general fund revenue over time, it is necessary to adjust for the decline in the purchasing power of the dollar and growth in the state’s population. The information in this analysis will be presented in constant FY 2013 dollars per capita. General fund revenues will be measured in terms of current resources as published by Minnesota Management & Budget (MMB), with projections for FY 2012-13, FY 2014-15, and FY 2016-17 based on the February 2013 forecast.

Most of the large general fund revenue decline that began in the middle of the last decade is the result of the Great Recession. However, it is worth noting that the decline in revenue began before the start of that recession. Approximately 25 percent of the decline in per capita general fund revenue from the peak year to the nadir of FY 2010 occurred before the onset of the Great Recession in December 2007 and approximately 40 percent occurred before the financial collapse in the second half of 2008.

General fund revenues are projected to recover modestly from FY 2010-11 to FY 2012-13. However, even with this recovery, per capita general fund revenue will remain less than at any point this century excluding the low point of FY 2010-11. Furthermore, according to projections and planning estimates based on current law from MMB, per capita revenue in FY 2014-15 and FY 2016-17 will be even less than in FY 2012-13.

During the entire four biennia extending from FY 2010-11 to FY 2016-17, average annual state general fund revenue will be approximately $3,200 per capita, based on actual revenue data for FY 2010-11 and projections and planning estimates for FY 2012-13 to FY 2016-17; this is over $500 per capita (14 percent) less than the average during the first four biennia of the previous decade (FY 2000-01 to FY 2006-07).

If no increase in revenue is approved during the current legislative session, per capita state general fund revenue in the next biennium (FY 2014-15) will be at its lowest level in two decades, excluding the biennium at the tail end of the Great Recession (FY 2010-11). Furthermore, keep in mind that over the last twenty years more public costs—such as general education and operating transit—have been shifted into the state general fund. In short, the state general fund is bearing more public expenses with fewer resources than it had twenty years ago.

Reasonable people can disagree as to whether Minnesota has a spending problem. However, one thing is clear: Minnesota definitely has a revenue problem. The consequences of this revenue problem are clear: increasing class sizes, escalating tuition at state colleges and universities, deteriorating infrastructure, and soaring property taxes. The Legislature and Governor should act to reverse these trends during the 2013 session.

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