Is This as Good as it Gets? Trends and Issues in Minnesota State Government Spending Brent Gustafson, Dept of Finance Charlie Bieleck, Dept of Finance Tom Gillaspy, Dept of Admin March 2008

If there is a time to solve the state’s fiscal problems, “If there is a time to solve the state’s fiscal problems, it is now. it is now. The economy has been strong. The percentage of Minnesotans of working age is still growing and will reach an all-time high in 2010, before beginning a long-term decline. Over the next 15 years, the combined proportion of children and elderly — the age groups most dependent on support from others — will be less than at any time since From now to the year 2010, the state will have a maximum percentage of people in their After 2010, solutions will be peak earning years. 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 Is this as Good as it Gets?

Focus of Today’s Discussion  Identify the major trends in Minnesota state government spending  Reexamine forecasts of populations with important spending implications  Identify some current areas of rapid spending growth

Demographically, it’s been easy K-12 enrollments have declined from 2001 through 2010 MA-paid nursing facility enrollment has declined by one-third since 1993; community-based care now twice as many recipients as nursing homes Boomers in workforce in high numbers, at peak earning years

Demographically, it’s been easy What we’re already paying for Prison population has doubled in the last decade Higher numbers of low-income and English- language learners in schools Rising numbers of students receiving special education services What we’re going to pay for Rising K-12 enrollments overall, plus continued growth of higher cost sub-populations Rising numbers of 85+ population Impacts of obesity on rates of disability

Minnesota total Appropriated State Expenditures, all Funds

Shares of General Fund Spending,

Critical Age Shifts Beginning Will Reinforce Spending Share Shifts Census counts & State Demographer projection, revised 2007

Within Our Means Identified 5 key expenditure drivers 1.Changing population characteristics 2.Eligibility & level of service provided 3.Standards, regulations and mandates 4.Costs of labor, materials and other inputs 5.Mounting infrastructure needs

Within Our Means Since 1995  No Child Left Behind and other mandates  MinnesotaCare ramped-up, welfare reform, and other programs  Costs of building & road maintenance materials have increased faster than inflation  Health care costs have increased faster than inflation  Deferred maintenance continues to be an issue  Technology and demand for information  And population continues to change  In short, the structural budget issues identified in Within Our Means continue to be issues

Projected Change in Minnesota Budget Interesting Age Groups Based on revised State Demographer projections 2007

But Change in Broad Age Groups is not the Only Story Rapid growth in “young elderly” will drive health care costs in the 10s Age shifts within the prime childbearing population coupled with growth in higher fertility populations results in more births Resurgent growth in K-12 enrollments coupled with growth in special programs will drive education costs Higher incarceration rates & longer sentences increases and ages the prison population

From 2010 to 2020, Largest Growth in Minnesota will be in Ages 55 to 74

Health Care Populations – all Public Programs Enrollment Increasing

Health Care Inflation Slowed in the Mid 90s Leading to a False Sense of Financial Easing US BLS data

Population with Disabilities will Grow at an Increasing Rate 2006 ACS. Assumes disability and institutionalization rates remain at 2006 levels

Minnesota Births 1990 to 2020; 2006 was highest since 1964 Source: Mn Dept of Health. State Demographer projections revised 2007

K-12 Enrollments (ADM) Beginning to increase Again

Special Education and Limited English Proficiency Students are Rising in Share and Number

Prison Populations – Adult Inmates Population Increasing

Minnesota’s State Prison Population is Growing Faster than the Total Population—Older Prisoners Even Faster In 2007, inmates 50+ were 10% of all adult inmates, up from 6% in 2000

But Age is not all that is Changing By 2020 Minnesota will add about ¾ Million People and 1/3 Million Households State Demographer projection revised 2007

Excess Infrastructure Capacity in Declining Areas & Increasing Congestion in Growing Areas in Declining Areas & Increasing Congestion in Growing Areas

Households are Increasing Faster than Population & Changing

Fastest Growing Expenditures  Prior to the enacted budget, 10 programs more than account for the $1.0B spending growth in the forecast  Health Care Entitlements Every category of Medical Assistance except long-term care facilities  Minnesota Sex Offender Program  Debt Service  Property Tax Refunds Report available, Dept of Finance

Ten Fast Growing Programs Account for an Increasing Portion of the Budget

Health Care: It’s the Enrollment  All health care purchasers face rising costs New technology, lifestyle choices, demographics  Minnesota’s public health care programs face rising enrollment pressure that other purchasers don’t confront  150,000 growth in enrollment from 1998 to 2008; SEGIP covers 120,000 people total  Public programs cover the deep-end of the cost pool: elderly and disabled

So, in Conclusion Big demographic changes have the potential to alter state government budget priorities Major trends and spending issues identified in 1995 remain The next few years are a watershed time for change Some spending areas are increasing rapidly even before the demographic pressures hit With growth and change comes new and exciting challenges