Download Next Generation Economy The Minnesota Perspective

Next Generation Economy
The Minnesota Perspective
Tom Stinson, State Economist
Tom Gillaspy, State Demographer
January 2009
November’s Forecast Highlights
Minnesota’s Major Budget Challenge
• FY 2008-09 -- $426 million deficit
• FY 2010-11 -- $4.8 billion shortfall
– Revenues decline 1.8 percent
– Expenditures increase 6.1 percent
• Planning Estimates for 2012-13 show
gap of $4.6 billion between revenues
and expenditures
– Including inflation would increase the
2012-13 shortfall by $1.5 billion
The Economic Outlook Has
Deteriorated Since November
Annual Pct Chg
Real GDP
4
Feb
Nov
Jan
3
2.69
2
1.51
1
0.12
0
-0.37
-1
-0.48
-1.38
-2
2007
2008
2009
Fiscal Year
2010
2011
This Recession Is Expected to Be One of
the Deepest and Longest Since WWII
Real GDP
$ Billions
14000
Feb
Nov
Jan
13000
12000
11000
10000
2007
2008
2009
2010
2011
January 2008: “Last Year’s
Issues Have Not Gone Away”
January 2009: This is still true!
Next 25 Years--State Revenue
Growth Rate Projected To Slow
5 Year Compund Growth Rate
8%
7%
6%
Total
Per Capita
Real Per Capita
6.8%
5.5%
5%
3.9%
4%
3.4%
2.8%
3%
2%
1.2%
1%
0%
2001
Budget Trends Commission, 2009
2033
If State Health Care Costs Continue Their
Current Trend, State Spending On Other
Services Can’t Grow
8.5%
Annual Ave Growth 2008-2033
9%
8%
7%
6%
5%
4%
3.9%
3%
2%
1%
0.2%
0%
Revenue
Health Care
Education & All
Other
General Fund Spending Outlook, presentation to the Budget Trends Commission,
August 2008, Dybdal, Reitan and Broat
In 1995, we said,
“If there is a time to solve the state’s
fiscal problems, it is now.”
“After 2010, solutions will be more
difficult, as the percentage of
Minnesotans of working age begins
to decline.”
Within Our Means, January 1995, page 9
The Next Generation Economy-Long term issues are quickly becoming
short term challenges
The next four years will be a period of
great social and economic change
Structural imbalances have turned into
projected budget deficits
Rapid aging and the related surge in
entitlements are upon us
Economic growth will depend increasingly
on productivity growth
Once again, wise decisions are needed
Minnesota Will See a 30 Percent Jump in
Workers Turning Age 62 Beginning 2008
Worked Within Past 5 years
60,000
50,000
40,000
30,000
20,000
10,000
0
7/05 to
7/06
7/06 to
7/07
7/07 to
7/08
7/08 to
7/09
7/09 to
7/10
Year Turning Age 62
2005 ACS
7/10 to
7/11
7/11 to
7/12
From 2010 to 2020, Minnesota Will
See Large Increases Age 50s and 60s
85+
80-84
75-79
70-74
65-69
60-64
55-59
50-54
45-49
40-44
35-39
30-34
25-29
20-24
15-19
10-14
5-9
0-4
16,500
8,440
41,400
91,370
112,540
102,960
54,240
-42,310
-63,650
-2,680
61,920
47,950
-9,980
-30,680
Source: Minnesota State Demographic Center
Numbers are rounded
5,050
47,330
36,190
20,150
Budget Pressures Will Change
More 65+ Than School Age by 2020
1,400,000
1,200,000
1,000,000
18-24
65+
5-17
800,000
600,000
400,000
200,000
0
1950 1960 1970 1980 1990 2000 2010 2020 2030
Census counts & State Demographer projection, revised 2007
Health Care Spending Jumps After 55
U.S. Health Care Spending By Age, 2004
$12,000
$9,914
$10,000
$9,017
$8,000
$6,694
$6,000
$2,000
$3,571
$3,496
$4,000
$1,855
$2,165
$2,747
$1,074 $1,445
ra
ge
A
ve
75
+
65
-7
4
55
-6
4
45
-5
4
35
-4
4
25
-3
4
15
-2
4
14
5-
<5
$0
Source: Agency for HealthCare Research and Quality, Medical Expenditure Panel Survey,
data for per capita spending by age group in the Midwest. Excludes spending for long-term care institutions.
The Most Rapidly Growing Segments Of
Minnesota Are People In The Highest
Health Care Cost Ages
85+
80-84
75-79
70-74
65-69
60-64
55-59
50-54
45-49
40-44
35-39
30-34
25-29
20-24
15-19
10-14
5-9
0-4
16,500
8,440
41,400
91,370
112,540
102,960
-42,310
-63,650
54,240
-2,680
61,920
47,950
-9,980
-30,680
5,050
47,330
36,190
20,150
Change 2010-20
Source: Minnesota State Demographic Center
Numbers are rounded
Use Of Health Care Professionals Is Increasing
Association of American Medical Colleges, November 2008
Shortages of Doctors and Nurses
Projected For The United States
Association of American Medical Colleges, November 2008
Productivity Has Been Minnesota’s
Competitive Advantage
It will be even more important in
The Next Generation Economy
Productivity Remains The Key To
Quality of Life In Minnesota
Economic Growth=Labor Force Growth +
Productivity Growth
Productivity growth comes from
Private investment—machines & processes
Public investment—roads, bridges, etc
Technology from research, public & private
Skills & abilities of workers—education &
training
Labor Force Growth Is About To
Slow Sharply
Ave Annual Change
1.6%
1.52%
1.4%
1.12%
1.2%
1.0%
0.75%
0.8%
0.6%
0.43%
0.4%
0.27%
0.2%
0.10%
0.13%
0.0%
19902000
2005-10 2010-15 2015-20 2020-25 2025-30 2030-35
Competition For Future College
Students Will Increase
14%
13.0%
Percent Change 18-24
12%
10%
8%
US
Mn
6.8%
6%
4.5%
4%
2%
0%
-2%
-1.2%
-4%
-1.6%
-2.2%
-3.5%
-3.0%
-6%
2000-05
2005-10
2010-15
2015-20
Census Bureau US Proj, Mn State Demographer revised 2007. The 18 year old
population, both Minnesota & nationally are projected to decline starting 2009.
The New 3 R’s for Economic Success
• Retention
• Recruitment
• Retraining
Tough Decisions Must Be Made
• What is state government well
positioned to do?
– Some issues are national in scope
– Some are local
– Some are inherently private
• What activities are central to state
government’s role?
Big Opportunities
• The current situation is not sustainable
• The challenge--building the foundation
for future success
– Economic prosperity
– Environmental quality
– Social justice
– Quality of life
“If something can't go on forever,
it will stop.”
Herbert Stein, chair President Nixon’s
Council of Economic Advisors