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Ask the Budget Director

Maraget

I am Margaret Kelly, State Budget Director. 

The state budget is large and complex. And, some of the terms and concepts are unique to state government budgeting. 

The following questions provide an overview of the basics of the budget. We are interested in hearing your thoughts or additional questions.

You may e-mail questions or comments to me at budget.finance.mmb@state.mn.us.



  • How large is the state's budget?

    There are two important numbers for the state budget. The first is general fund spending. For the current two-year budget general fund spending is expected to be $39.587 billion - or just under $20 billion per year. The general fund budget numbers are the numbers one is most likely to find frequently referenced in the media and news stories. numbers. The general fund is the largest state fund where most state taxes are deposited and most state spending for major budget areas occurs.  State forecasts and resulting projections of "deficits" or "surpluses" focus on the state general fund.

    However, this does not represent total state spending. For the current budget period total state spending is expected to be $71.289 billion - or about $35.6 billion a year The general fund accounts for just over for just over 55 percent of total state spending. Other state funds, dedicated for specific purposes, as well as federal funding received by the state make up the additional spending. State budget documents for a given area of agency generally display total funding broken into categories: general fund, other state funds, and federal. 

    You can find more information on the current state budget on the budget division web pages under Operating Budget, Current Budget

  • How has the share of the general budget for major areas changed over the last decade?

    Over the last decade growth in K-12 education spending and the cost of human services' programs have grown faster than other areas of the budget. As a result their share of general fund spending has increased while other areas have declined as a percent of total spending.

    Graphic displaying share of general fund budget since 1990 shows K-1e education and human services growing faster than other areas.

    Human services spending, driven primarily by increases in health care costs has increased from  just under 21 percent of general fund spending in fiscal year 1990 to nearly 30 percent expected in fiscal year 2015.

    Bar chart showing percent of general fund spending by area, 1990 to 2015.



  • What are the state's primary sources of revenue - how fast are they growing?

    Income, Sales, Corporate Income, and the Statewide Property tax are the four largest sources of general fund revenues. The composition of revenue sources and the growth rate of each of the sources is fundamental to understanding and managing state finances. In general, a diverse revenue system with broad-based taxes is more stable, more likely to align with economic activity, and likely to be less volatile.  

    It is a benefit that both income and sales tax contribute more than 75 percent. Compared to 2005. however, Minnesota has become more reliant on those two revenue sources. 

    Bar Chart General Fund Revenue composition, general fund at 49.7 percent, sales at 26.3 percent


    The rate at which state revenues are likely to grow is important to understanding the state budget and state finances. It determines not only the stability of Minnesota's revenue structure, but forecasting the long-term trend of revenue growth provides an important tool when matched against future projected growth in spending.

    Bar Chart average annual growth income at 4.3 percent, sales at 1.9 percent, corportae at 2.2 percent, and statewide property at 3.4 percent


  • How many state employees are there? How has that number changed in recent years?

    For the most recent completed state fiscal year, FY 2013, there were 35,786 full-time equivalent employees on an annual basis. 

    The number of state employees is typically measured in terms of full-time equivalent staff years - that, is one person working forty hours a week for a full year would be considered one FTE; two people working half-time would also count as one FTE. Fte is calculated based on the number of hours paid divided by the normal number of working hours in a year, usually 2080. The calculation includes full-time employees, part-time, seasonal labor serve, and overtime hours.

    The chart below displays the growth in State employment over the last decade. State FTE employment has grown by approximately 1,859 positions - increasing from 33,927 to 35,786 This is just under a 5.5 percent increase over the ten year period. The number of full-time equivalent state employees has generally tracked closely with the growth in the Minnesota's total population.

    Bar chart displaying state FTE data from 2003 to 2013. Data shows increase from 33,927 to 35,786 over that ten year period.

    While there are about one hundred various state agencies, boards and commissions, ten of the largest entities account for nearly 80 percent of total state employment

    Bar hart displaying ten largest agencies: human services, transporation, corrcetions, and natural resources are thetop four

    The four largest agencies Human Services, Transportation, Corrections, and Natural Resources are the largest state government employers accounting for just over 50 percent of total state employment.

    The state level employment data includes executive branch state agencies, constitutional offices, the judicial branch, retirement systems, and the legislative auditor which are paid through the state's payroll system. Not included are FTE estimates for the Legislature, higher education systems (University of Minnesota and MNSCU), and and quasi-state entities such as the Minnesota historical society and Metropolitan Council which are generally reflected as state grant programs. 
  • How large is the public sector in Minnesota
    In 2012 state and local government payrolls totaled $15.792 billion and Minnesota's total public sector employment totaled 391,853

    Total public sector employment includes school districts, non-school units of government (cities, counties townships, special districts, and indian enterprises), and state level entities (state agencies, legislative, judicial, and higher education institutions)

    State and local government (excluding federal government employment) accounted for 14 percent of total Minnesota non-agricultural employment. Of this total, local government, both school and non-school, represented 290,294 jobs; while, state employment represented 101,586 jobs.

    FAQ-Public-Sector-Employment-March2013


    Of the $15.792 billion spent for state and local government payrolls in 2012, nearly three-quarters of the spending occurred at the local level in school districts and local governmental units. Just over one-quarter of the spending occurred at the state level for state government entities and for the higher education institutions including the University of Minnesota and Minnesota State Universities and Colleges.

    FAQ-pub-sector-payroll March 2013


    Overall public sector employment and payrolls accounted for 15.1 percent of Minnesota's economy and employment base. Federal employment in Minnesota total 30,866 jobs, 12,417 of which were in the US Postal Service.

    Data present here reflects employment numbers from Minnesota's Department of Employment and Economic Development - Current Employment statistics, December 2013. Wage and salary estimates reflect US Bureau of Economic Analysis' wage and salary data reported for 2012.
  • What is the current state payroll?

    Here are some state payroll facts:

    • $110 million bi-weekly payroll
    • 37 thousand direct deposit / paychecks issued bi-weekly
    • $2.134 billion annual "all funds" salaries and wages paid out in FY 2013
    • $2.853 billion in total compensation costs for FY 2013 (including retirement, social security, and insurance costs)

    This payroll includes executive branch state agencies, constitutional offices, the judicial branch, retirement systems, and the legislative auditor which are paid through the state's payroll system. Not included are payroll estimates for the Legislature, higher education systems (University of Minnesota and MNSCU), and and quasi-state entities such as the Minnesota historical society and Metropolitan Council which are generally not on the state payroll system and are effectively treated as grant or aid payments. 

    On average, the cost of total state compensation can be broken down into the following general components based on FY 2013 payments: 

    • 74.8 percent - Salaries 
    • 5.0 percent - Employer-paid Retirement Contributions 
    • 5.2 percent - Employer Social Security Contributions 
    • 15.0 percent - Employer Insurance Contributions 
  • How does the state budget its money?
    Minnesota enacts budgets for a two-year cycle (a biennium), beginning on July 1 of each odd-numbered year. The budget approved for the current biennium remains in effect from July 1, 2011 through June 30, 2013. By law, the Governor must propose a biennial budget in January of odd numbered years. Once enacted by the legislature, the budget can be modified in the "off-year" legislative session. As a result of state forecasts and other changes, it has become common for the Legislature to enact annual revisions to the state’s biennial budget. These revisions are referred to as supplemental budgets.
  • Is the State budget required to be balanced?
    Yes, this is both a constitutional and statutory requirement. According to Minnesota's State Constitution, Article XI, Sections 6 and 7   the State is prohibited from borrowing money for operating expenditures outside of the current two year budget period and requires the State Auditor to levy a property tax to cover any deficit at the end of a biennium. 

    Additionally, State Statutes also require a balanced budget. Minnesota Statute 16A.11 requires the Governor to submit a detailed balanced budget to the legislature and Minnesota Statute 16A.152, subdivision 4 , requires the Commissioner of Management and Budget, with the approval of the Governor and after consultation with the Legislature, to reduce State spending (allotments) if it is determined the State revenues for the current budget period will be less than State expenditures for that period.

  • How much revenue does the state receive annually from the federal government>?

    The state collected $8.862 billion in federal revenue in the most recently completed fiscal year, 2013.  Al though most public attention is focused on general fund revenues, the majority of revenue in the state budget is non-general funds. Non-general funds are receipts set-aside, or “dedicated” for specific purposes. For FY 2013, non-general fund revenues totaled $14.1 billion, or about 44 percent of total state revenues.

    Federal grants are the largest source of non-general fund revenues, and the $8.8862 billion received in FY 2013 accounted for nearly 63 percent of non-general fund revenues. Frequently these grants do not come to the state as simple cash transfers. The federal government mandates many program requirements as conditions of the grants and often the states must provide matching funds. Entitlement programs such as Medical Assistance and Aid to Families with Dependent Children are example of programs that require a significant state contribution.

    The chart below displays federal revenues collected in FY 2013 by state agency.


    Bar Chart showing $8.8 billlion in federal revenues fro FY 2013. $6.2 billion is in the Department of Human Services programs.
  • How much does the state have in reserves or "rainy day" funds?

    Minnesota currently has $811 million in its general fund budget reserve. Just like a family's need to have emergency funds available for unexpected household costs, the State’s general fund budget reserve (“rainy day fund”) is an important risk management tool to reduce disruptions in state services caused by declines in revenue or expenditure increases related to national economic cycles. The state general fund also has a separate $350 million cash flow account - primarily to maintain sufficient cash balances during the year to manage timing significant timing differences in when revenues are collected and payments made.

    The National Governor’s Association and National Association of State Budget Officers recommend minimal reserve levels equal to five percent of annual spending. Standard & Poor’s rating framework affords top scores to states with “a formal budget reserve relative to (one-year) revenue or spending that is above 8 percent.”  Prior to the 2014 legislative session, Minnesota’s statutory maximum level for the budget reserve was set at $653 million was set in 2000, and was the equivalent of about 3.7 percent of current annual spending.

    In 2014, the Legislature increased the budget reserve by $150 million, increasing it to $811 million.  The legislation also set a target level of approximately 10 percent of annual revenues, permitted the target level to adjust to changes in revenues and created an automatic process to dedicate one-third of future November forecast balances to the budget reserve to meet reserve target levels.

     
    Reserves-Graphic_June_2014


    It is important to provide some historical context. Minnesota’s statutory budget reserve (capped in law at $653 million) has lost about 1/3 of its real value (purchasing power) since 2001 – adjusting for inflation based on a price index of state & local purchases (PGSL). In other words, if Minnesota's general fund budget reserve had instead been indexed to inflation since 2001, and had not been capped at $653 million, it would currently be $975 million - $322 million higher.

    Alternatively, If Minnesota's statutory budget reserve had continued to increase since 2001 at the same rate as general fund revenues have grown, the reserve would currently be $1.03 billion, slightly over $200 million more than it is today.

  • What is a capital budget?
    The state’s expenditures for capital projects are unlike the operating budget, where expenses are compared to revenues and the budget must be balanced every year.  Instead, the Legislature passes capital investment legislation, commonly referred to as “bonding bills”, to finance the state’s land purchase and building construction projects.  MMB issues 20-year general obligation bonds to pay for the projects and programs in the bonding bills.  Legislators do consider how much money will have to come from the general fund every year to pay principal and interest on the bonds when they are determining how large they want bonding bills to be.

    Typically, the legislature passes larger bonding bills in even-numbered year sessions.  To prepare for that, MMB asks state agencies and local governments to submit requests for appropriations for capital projects in the spring of each odd-numbered year.  These requests are compiled and submitted to the legislature on a preliminary basis on July 15 of odd-numbered years and in their final form on January 15 of each even-numbered year.  The Governor submits his proposed capital budget to the legislature along with the January 15 submission.

    The legislature also frequently enacts bonding bills in the “off” odd-numbered year sessions, which are typically smaller in size and cover emergencies such as tornado or flood relief.  However, this is not always the case.
  • Why does the state borrow money for capital projects?
    Capital projects include land and buildings and improvements to buildings, such as additions and major renovations.  These kinds of assets have useful lives of 20 years or more.  Because land acquisition and new building construction are frequently very expensive and would be difficult to fund in one year, the state borrows money to pay for most of its capital projects by issuing general obligation (“G.O.”) bonds.  

    This is similar to how an individual takes out a mortgage loan to buy a home.  Under the State constitution, the bonds cannot be outstanding for more than 20 years.  This provision makes sure that the length of the loan does not exceed the expected life of the assets financed by the bonds, which would not be sound fiscal policy. 

    One of the state’s debt management guidelines requires that 40% of state G.O. bonds are to mature within five years and 70% within ten years.  This guideline was put in place to provide for fairly aggressive repayment of state G.O. borrowings.
  • What has been the size of approved capital budgets over the last decade?

    While the amount varies significantly by odd and even years, over the last ten years the average has been about $775 million in even numbered years and about $220 million in odd-numbered sessions. 

    Bar chart of approved genera obligation bonds from 1999 to 2013. While the amount varies significantly by odd and even years, over the last ten years the average has been about $775 million in even numbered years and about $220 million in odd-numbered sessions.

  • How is the budget related to the economic forecast?
    MMB provides revenue and expenditure forecasts twice a year. These forecasts are used to determine the size of any deficit or surplus in the state’s budget. The November forecast is used to set the starting point for the budget, and is the basis for the Governor’s recommendations. The February forecast incorporates additional data and is used by the Legislature and the Governor to set the enacted budget.

    Expenditure estimates in most spending areas are shown at the level of appropriations set in current law, plus any authorized spending carried forward from prior years. Entitlement programs--such as K-12 general education, intergovernmental aids, health care, and family support--are forecast based on expected changes ineligibility, enrollment, and average costs. Wage and price inflation is included in the revenue estimates, which are based on current law tax rates. It is not included in projected current law expenditures.

    Forecast documents can be found under the "Forecasts and Updates" section of the Economic Analysis unit.
  • What is a fiscal note?

    "Fiscal notes" are documents that estimate the budgetary impact, including costs, savings or changes in revenue, of proposed legislation (referred to as "bills"). The chairs of the House of Representatives Ways and Means Committee, the Senate Finance Committee, or committees to which a bill has been referred may request that fiscal notes be completed for a bill. Fiscal notes are typically prepared by executive branch agencies affected by bills. 

    All fiscal notes must be approved by the executive branch’s budget agency (MMB). You can find completed fiscal notes here.

  • How many fiscal notes are normally requested during a legislative session?

    The number of fiscal notes requested varies significantly depending on whether it is an odd-numbered year session which considers the biennial budget, or a normally shorter even-year session which may consider supplemental budget adjustments and other legislative initiatives. On average, odd-year session generate just under 1,000 fiscal notes requests while, even-numbered year sessions results in just over 640 separate requests.

    Bar chart showing number of fiscal notes by year. Averages about a thousand in even-numbered yearss, about 700 in odd-numbered yeras.

    Although fiscal notes are prepared on individual legislative bills, commonly approved pieces of legislation that have a fiscal impact are folded into omnibus appropriation bills in the legislative process and are not enacted as separate bills.

    Completed fiscal notes are public documents. Completed notes are published here.


     
  • What is a local impact note?

    "Local impact notes" estimate the local financial impact on each type of political subdivision that would result from proposed legislation. Political subdivisions include local units of government such as cities, counties, and school districts. Local impact notes may be requested by the chair or ranking minority member of the House or Senate Tax Committee, the House Ways and Means Committee, or the Senate Finance Committee. 

    The law assigns responsibility for coordinating local impact notes to MMB. To prepare local impact notes, MMB often obtains data or input from representatives of local government units or associations. You can find completed local impact notes here.

  • What is a "revenue note"?
    Estimates for the cost of proposed legislative changes to state taxes, or local aids and property tax credit programs, follow a different course than fiscal notes. Chairs of the legislative tax committee may request revenue analyses directly from the Department of Revenue on proposed tax bill provisions and language. Revenue's tax research and property tax division completes and publishes revenue analyses for tax provisions of various house and senate bill.

    Completed revenue analyses for the 2013/14 and prior legislative sessions can be found here on the Department of Revenues web site.

    On average, the Department of Revenue responds to about 230 requests for revenue analyses for the tax committees in even-number years and publishes just under 280 analyses in odd-numbered years.

    Revenue Notes



  • How can I obtain additional information on specific state agencies and programs?

    The inventory of state agencies, programs, and activities is a good starting point. This information, prepared with the biennial budget, provides descriptive information on the nature, purpose and performance of state programs and activities. The information normally includes a link to an individual agency's website - along with a contact for additional information.