January 30 , 2013 Presented by: Minnesota Senate Fiscal Staff

1. Minnesota State Budget: Status, Components & Overview January 30, 2013 Presented by: Minnesota Senate Fiscal Staff Minnesota Senate, Office of Counsel, Research and Fiscal Analysis

2. Presentation Outline • Fiscal Staff, Fiscal Notes, Revenue Estimates and Basic Information • Recap the November 2012 State Budget Forecast — General Fund • Budget Overview • “All Funds” • General Fund • Overview of individual budget areas Unless otherwise noted, all figures reflect FY 2014-15 projections, based on the November 2012 budget forecast.

3. Minnesota Senate Fiscal Staff,Committee Assignments

4. Role of Legislative Fiscal Staff • Analyze spending and revenue proposals, including modeling of many proposed education and tax law changes. • Request and interpret Fiscal Notes and Revenue Estimates; interface with state agencies to ascertain information in support of the policy process. • Draft budgetary legislation. • Track budget proposals and decisions using Spreadsheets. • Support legislative oversight of enacted budgets.

5. Types of Appropriations • Direct Appropriation is an appropriation made in biennial or annual budget bills and is for a limited period of time, usually within the biennium. • Statutory Appropriation refers to the authority to spend resources that is codified in state statute, rather than session laws. This means the expenditure authority is ongoing and not dependent on the passage of an appropriations bill each biennium. • Open Appropriation refers to the authority to spend an unspecified amount of resources to meet a program's objective or a constitutional requirement. These resources are typically made available when an agency provides a forecast of the estimated need. These open appropriations are reported in the Governor's biennial budget as " Open Appropriations”. • Standing Appropriation is the authority to spend a pre-determined dollar annual amount for an activity for a specific period of time or indefinitely. (Example: MS 240A.08 Appropriation….”$750,000 is appropriated annually from the general fund to the Minnesota amateur sports commission for the purpose of.….”

6. How Do I Find the Cost of My Bill? • Fiscal Notes • A Fiscal Note is a formal document prepared by state agencies and coordinated by the Department of Finance that provides estimates the costs, savings, revenue gain, or loss resulting from the implementation of proposed legislation. • Revenue Analysis • A Revenue Analysis is a formal document prepared by the Department of Revenue that provides estimates of revenue changes for both state and local governments from proposals to change tax laws

7. Use of Fiscal Notes/Revenue Estimates in the Legislative Process • Fiscal Notes: Minnesota Statutes 3.98 • Fiscal note examines spending and fee changes • Fiscal note requested by committee chairs • MMB coordinates and signs off • Local Impact Notes: Minnesota Statutes 3.987-3.989 • Local impact note examines fiscal impact of proposed law change on counties, cities, school districts and any other local governments • Local impact note requested by tax, finance or ways & means committee chairs or ranking minority members • MMB coordinates • Revenue Estimate: Minnesota Statutes 270C.11, subd. 5 • Revenue estimate examines tax changes • Revenue estimate requested by tax committee chairs or ranking minority members • DOR is responsible

8. Fiscal Note Requirements • cite the effect in dollar amounts • cite the statutory provisions affected • estimate the increase or decrease in revenues or expenditures • include the costs that may be absorbed without additional funds • include the assumptions used in determining the cost estimates • specify any long-range cost implications. The fiscal note may comment on technical or mechanical defects in the bill but may not express opinions concerning the merits of the proposal. MMB prescribes a uniform procedures that govern all agencies.

9. Requesting a Fiscal Note • In the Senate a fiscal note request may be entered into the system by any nonpartisan fiscal analyst or the committee administrator of the Senate Finance Committee. • Legislators are advised to discuss the need for a fiscal note on a bill with legislative fiscal staff • Does the bill have a fiscal impact? • Is a fiscal note or revenue estimate needed? • Is the fiscal impact obvious and a fiscal note not needed? • Will significant amendments be proposed? Other Considerations • Bill hearing schedule • Bonding bills • Education bills

10. The Biennial Budget Calendar Governor’s capital budget submission FY 2014-15 supplemental budget actions enacted FY 2014-15 biennial budget enacted Governor’s biennial budget submission Legislative session Legislative session Legislative session FY 2013 FY 2014 FY 2015 July 1, 2013 July 1, 2014 November 2012 Forecast February 2013 Forecast November 2013 Forecast February 2014 Forecast November 2014 Forecast February 2015 Forecast

11. General Fund Budget Forecast • Current Biennium (FY 2012-13) — zero budget balance. Not negative, not positive. • FY 2014-15 — $1.1 billion deficit after carryforward. • Budget “Tails” (FY 2016-17) — A positive balance of $263 million projected in the planning years

12. General Fund Budget ForecastNovember 2012

13. General Fund Budget ForecastNovember 2012

14. Budgetary Balance Over Time

15. Structural Balance:Current Revenues vs. Current Spending • Spending exceeds revenues. • One-time solutions used to address ongoing budget gaps. • Projected improvement in budget tails.

16. State Budget Structure • Approximately 126 “Funds” established in law (funds may be created by Constitution or Statute). • “All Funds” refers to the roughly 39 funds that support biennial operations. • General Fund is largest fund; required to be balanced, tends to be the focus of budget deliberations and of public-media attention. • Within Funds may be various Accounts, along with Programs, Activities, & lower levels of detail.

17. Budget Overview

18. Budget Overview

19. Budget Overview

20. Budget Overview

21. Budget Overview

22. Budget Overview

23. Budget Overview

24. State Tax Revenues Presented by: • Shelby McQuay • Fiscal Analyst • Shelby.McQuay@senate.mn • 651-296-5259

25. Tax Committee Jurisdiction • All bills relating to taxes and tax aids and credits • The Budget Reserve • Tax Increment Financing • Fiscal Disparities • Payment in Lieu of Taxes (PILT) • Tax Court

26. State Revenues, FY 2014-15 • All Funds = $65.7 billion in FY 2014-15 • General Fund = $35.8 billion in FY 2014-15 Based on the November 2012 Forecast

27. General Fund Tax Revenues, by Type $33.8 billion for FY 2014-15 Based on the November 2012 Forecast

28. Minnesota Miracle 2001 Reform FY 02FY 03 Income 29.7% 29.9% Sales 24.7% 26.0% PTX 29.3% 25.6% Other 16.2% 18.4% 53.6% 42.3% 31.9% 31.6% 26.5% 28.4% 22.4% 14.5% 19.9% 17.6% 11.4% 0.0% Source: Minnesota Department of Revenue and Price of Government, November 2012 History of Major Taxes (% Share)FY 1962-2015

29. Minnesota Individual Income Tax Brackets • Proceeds go to the general fund - $17.44 billion in FY 14-15 • Starting point: Federal Taxable Income • Alternative Minimum Tax (AMT): Broader Tax Base and lower rate [6.4%] • Taxpayer pays whichever calculation results in a greater tax liability

30. Corporate Franchise Tax • Proceeds go into the General Fund - $1.95 billion in FY 14-15 • Combined reporting for unitary groups • Beginning tax base: Federal Taxable Income • Tax is applied to the amount of income apportioned to Minnesota • Tax rate = 9.8% (AMT = 5.8%) • Minimum fee ($0-$5,000) Phase in of Sales Apportionment

31. Other State Taxes • Sales and Excise Tax - $10.12 billion in FY 14-15 • Proceeds go to the General Fund and the Legacy Funds • General rate = 6.5% • Constitutional amendment rate = 0.375% • Total Rate = 6.875% • Certain purchases are subject to exemptions • Business, government and nonprofit also qualify for certain exemptions • Other State Taxes – $2.65 billion in FY 14-15 • Estate Tax • Insurance premium taxes • Cigarette and tobacco taxes and fees • Alcoholic beverage taxes • Mortgage registry tax • Deed transfer tax • Motor vehicles sales tax • Motor vehicles lease tax • Motor vehicles fuels tax • Minnesota care taxes

32. State General Levy • Proceeds go to the General Fund - $1.68 billion in FY 14-15 • Tax levied on two types of properties: • 95% on Commercial Industrial (CI) • 5% on Seasonal Recreation Residential (SRR) property • $852 m in CY 2013; increases annually by an inflation factor

33. Health and Human Services Presented by: • Dennis Albrecht • Fiscal Analyst • Dennis.Albrecht@senate.mn • 651-296-3817

34. Health and Human Services • Department of Human Services • Department of Health • Health Insurance Exchange • Emergency Medical Services Board • Council on Disability • MH/DD Ombudsperson • Ombudsperson for Families • Health Related Boards

35. Health and Human Services • General Fund Allocations, FY 14-15

36. Department of Human Services • General Fund Allocations, FY 14-15

37. Department of Human Services • MA Average Monthly Recipients (2012) Monthly Average Total: 732,832

38. Department of Human Services • MA Expenditures (2012)

39. Department of Human Services • Children & Family Services, FY 14-15

40. Department of Health • Administers WIC and family home visiting programs • Operates breast and cervical cancer screening programs • Regulates health and long-term care facilities • Investigates reports of maltreatment of adults • Regulates HMOs and county based purchasing plans • Operates state registrar—birth and death records • Monitors drinking water quality • Detects, investigates and mitigates infectious disease threats and outbreaks • Administers newborn screening program • Coordinates state response to major emergencies

41. Department of Health • All Funds Allocation, FY 14-15

42. Health and Human Services • Other Agencies • Health Insurance Exchange • Emergency Medical Services Board • Council on Disability • MH/DD Ombudsperson • Ombudsperson for Families • Health Related Boards

43. Health and Human Services • Other Agencies, All Funds Allocation, FY 14-15

44. Higher Education Presented by: • MajaWeidmann • Fiscal Analyst • Maja.Weidmann@senate.mn • 651-296-4855

45. Higher Education • General Fund Distribution, FY 14-15 NOTE: Mayo Medical Foundation appropriation < 1% of total GF appropriation for higher education

46. Higher Education - Base Budget • FY 14-15, dollars in 000s

47. Higher Education • University of Minnesota U of M FYE Enrollment Twin Cities Campus Tuition • Five Campuses: Twin Cities, Crookston, Duluth, Morris, Rochester • 82,303 students UDH (credit courses), 64,283 FYE (2011-12) • Annual Undergraduate Tuition (System Average): $12,572 (2012-13)

48. Higher Education • Minnesota State Colleges and Universities • State Universities • State Colleges FYE Enrollment Tuition • 32 Colleges and Universities (25 two-year colleges, 7 state universities) • 275,742 students UDH (credit courses), 431,351 (non-credit courses) [Note: students enrolled in both credit and non-credit courses counted in credit headcount only]; 153,447 FYE (2011-12) • Average Tuition (2012-13): Colleges: $4,816; State Universities: $6,782

49. Higher Education • Office of Higher Education • Financial Aid Services-State Grants and Loans • Licensing and Credentialing of Institutions • Student Data • Tuition Reciprocity Agreements

50. Higher Education • Higher Education Facilities Authority • Issues tax-exempt revenue bonds to assist non-profit and public higher education institutions finance construction projects on their campuses • 21 non-profit colleges and universities have utilized this program to construct facilities on their campuses • Authorized to issue up to $1.3 billion in revenue bonds