February 2024 Budget and Economic Forecast Cover

Budget Outlook Improved,

Structural Imbalance Remains

• Higher revenue forecast raises the projected general fund surplus in FY

2024-25 to $3.7 billion, up $1.3 billion.

• Near-term U.S. economic outlook improved; growth expected to persist

through forecast years.

• Higher expected corporate profits, higher tax receipts so far this fiscal
year, significantly raise corporate tax revenue forecast.

• Spending forecast unchanged in current biennium, slightly higher

in planning years.

• Structural imbalance smaller, but not eliminated.

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 FY 2024-25 Forecast Changes

FY 2024-25 FY 2024-25 Forecast

($ in millions) Nov Forecast Feb Forecast Change

Beginning Balance $16,516 $16,516 $ -

Revenues 59,655 60,997 1,343
Spending 70,516 70,535 19
Cash Flow Account 350 350 -
Budget Reserve 2,913 2,913 -
Budgetary Balance $2,392 $3,715 $1,324

3
 Structural Imbalance Remains in FY 2026-27

$ in millions
4
 Economic and Revenue Outlook

• U.S. Economic Outlook

• Minnesota Labor Market
• Revenue Forecast
• Forecast Risks

5
 U.S. Economic Outlook Improves
for this Year and Next

U.S. Real Gross Domestic Product

November 2023 Annual Percent Change
8 February 2024

5.8
6

4
3.0
2.5 2.4 2.5 2.4
1.9 1.6
2 1.4 1.4
1.7 1.7 1.7 1.8

-2
-2.2

-4
'18 '19 '20 '21 '22 '23F '24F '25F '26F '27F
Source: Bureau of Economic Analysis (BEA), SPGMI Global Market Intelligence, IHS Global Inc (SPGMI)

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 Easing Financial Conditions Support a Stronger U.S.
Economic Forecast; Lower Interest Rate Path Expected

Federal Funds Rate

Percent
History
November 2023
6 February 2024

0
2020 2022 2024 2026
Source: SPGMI

7
 Inflation Expected to Fall This Year and Next

Consumer Price Index

14.0
History Annual Percent Change

12.0
February 2024
Forecast
10.0

8.0 8.0

6.0

4.0 4.1
2.8 2.3
2.0
1.9
0.0
2010 2015 2020 2025F
Source: BEA, SPGMI 8
 Corporate Profits Forecast Higher
than in November
U.S. Corporate Profits Before Tax*
Billions of Dollars, Annual Rate
U.S. Recession
'February 2024
'November 2023
4,000 40000

3,500 35000

3,000 30000

2,500 25000

2,000 20000

1,500 15000

1,000 10000

500 5000
*With Inventory Valuation and Capital Consumption Adjustments
0 0
2000 2003 2006 2009 2012 2015 2018 2021 2024 2027

Source: BEA, SPGMI, Minnesota Management and Budget (MMB) 9

 Minnesota’s Corporate Tax Revenue

Biennial Receipts
Total Corporate Franchise Tax Receipts, Millions
Average $6.2B
7,000
$5.7B
6,000

5,000
$3.8B
4,000 Average $2.7B
3,000

2,000

1,000

-
FY14-15 FY16-17 FY18-19 FY20-21 FY22-23 FY24-25 F FY26-27 F
Total Total Total Total Total
Source: MMB
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 Minnesota’s Labor Market

Unemployment Rate
Monthly, Seasonally Adjusted, December 2023
16% U.S.
U.S. unemployment
14% Labor Force
Participation Rates in Minnesota rate expected to
December: rise to a peak of
12% = U.S. Recession
4.4 percent in
MN: 68.1 (5th highest
among states) late 2025
10%
U.S.: 62.5
8%
6%
4% 3.7%
2.9%
2%
MN rate 10th-lowest among all states
0%
1990 1995 2000 2005 2010 2015 2020

Source: MN Department of Employment and Economic Development (DEED)

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 Near-term Minnesota Wage Income
Forecast Higher

MN Total Wage and Salary Disbursements

November 2023 Annual Percent Change
8
February 2024
7.0 6.8

6
4.8 4.8 4.8 5.0
4.3 4.5 4.34.2 4.4
4.24.2 4.2
4 3.6

2.8

0.2
0
2016 2017 2018 2019 2020 2021 2022 2023F 2024F 2025F 2026F 2027F
12
Source: BEA, MMB
 Revenue Forecast

($ in millions)
FY 2024-25 FY 2026-27
Feb. 2024 Forecast Feb. 2024 Forecast
Forecast Change Forecast Change
Individual Income Tax $30,796 $449 $33,662 $(103)
General Sales Tax 15,359 126 16,383 71

Corporate Franchise Tax 6,162 749 6,287 940

All Other Revenue 8,680 18 8,483 (0)

Total Revenues $60,997 $1,343 $64,814 $907

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U.S. Economic Forecast Risks

• Inflation

• Monetary policy

• International conflict

• Federal fiscal policy

• Productivity growth a source of upside potential

• 17 months left until the end of the biennium

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 Spending and Long Term Budget Outlook

• Expenditure Forecast
• Long Term Budget Outlook

15
 Spending Forecast

($ in millions)
FY 2024-25 FY 2026-27
Feb. 2024 Forecast Feb. 2024 Forecast
Forecast Change Forecast Change
E-12 Education $24,500 $37 $25,600 $121
Health and Human Services 21,108 (10) 22,877 17

Property Tax Aids and Credits 5,482 5 4,649 (1)

Debt Service 1,137 (4) 1,350 10

All Other 18,307 (8) 10,973 (33)
Estimated Inflation n/a - 842 (38)
Total Spending $70,535 $19 $66,292 $75
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 Long Term Budget Outlook

($ in millions) FY 2024-25 FY 2026-27

Beginning Balance $16,516 $6,978

Forecast Revenues 60,997 64,814

Projected Spending* 70,535 66,292

Reserve & Cash Flow 3,263 3,263
Remaining Balance $3,715 $2,237
Structural Balance $(1,478)

*Projected spending includes $842 million of discretionary inflation in FY 2026-27.

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 February 2024
Budget and
Economic Forecast
Closing