1. Minnesota’s GDP Growth Rate Exceeded the US Average, 1967-2007

2. Payroll Employment Growth 1972-2007

3. Payroll Employment in Minnesota Has Grown Faster than the US Average

4. Manufacturing Employment 1972-2000

5. Minnesota’s Unemployment Rate Has Been Well Below the US Average

6. From 2004 to 2007 Minnesota Underperformed the US Averages Personal income growth US 6.2% MN4.4% Per capita personal income growth US 16.6% MN13.5% GDP growth US 8.4% MN4.8% GDP per capita growth US 5.4% MN2.6%

7. Minnesota Payroll Employment Has Struggled Since Early 2006

8. Minnesota’s Unemployment Rate Now Is Similar to the US Average

9. US Manufacturing Employment Fell Faster Than MN, 2000-2007

10. Minnesota Ranked 30 th in Employment Growth, 2000-2007

11. Minnesota Ranked 24 th in Real Per Capita GDP Growth, 2000-2007

12. Real Per Capita GDP Growth Compared to Neighboring States 2000-2007

13. Real Per Capita GDP Growth Compared to Midwestern States 2000-2007

14. Real Per Capita GDP Compared to High Tech States 2000-2007

17. Portfolio Theory Suggests Using a Tax System that Minimizes Volatility for a Given Growth Rate Given the trend growth rate, variance and covariance of each major tax, an Efficiency Frontier Line (EFL) can be estimated – The EFL shows combinations of taxes that provide the lowest volatility for each growth rate – Points below the frontier are suboptimal. The EFL is determined using quadratic programming to minimize state tax revenue volatility, σ 2 T, given growth rates g T – Minimize – Subject to: and and where ω is the weight of each tax.

19. Actual FY 2005-2007 Portfolio Efficient Tax Mix Portfolio Difference: (Efficient Less Actual) Trend Growth Rate7.70% 0.00% Volatility (Standard Deviation) 3.26%3.09%-0.17% Share of Total Tax Revenue General Sales 31.2%60.3%+29.2% Corporate Income 7.4%13.1%+5.6% Individual Income 48.1%9.2%-39.0% Other Revenues 13.3%17.4%+4.2% Total 100.0% Actual vs. Efficient MN One-Year Tax-Mix Given the Current Trend Growth Rate

20. Estimating the Volatility of a System of Taxes Markowitz’s modern portfolio theory used as a guide: – The expected growth rate in revenues is the weighted sum of the individual growth rates – Portfolio volatility is the square root of the weighted sum of the variances and covariances of the individual components