Demographic changes, including the pending retirements of baby boomers, will greatly affect the state’s expectations for growth, according to findings released this morning by the Minnesota Budget Trends Study Commission.

The group is calling for a bigger budget reserve to help deal with the expected impact.

Kevin Goodno and Jay Kiedrowski, co-chairs of the commission, are discussing the findings at an 11 a.m. session at the Centennial Office Building in the State Capitol complex.

The Legislature established the commission in 2007 to study the impact of Minnesota’s changing demographic trends on the long-term stability of state budget conditions. The commission consists of 15 members appointed by the governor and legislative chambers.

Highlights of the study (PDF) include:

• Minnesota is currently experiencing a major, long-range demographic shift. 

• Minnesota has become more diverse in recent years, a trend that will continue to increase as economic growth depends on drawing new workers to the state.

• Public spending priorities will need to shift as Minnesota’s economically dependent population grows larger and relies more heavily on fewer workers.

• Despite continuing to rank high among many key social and economic indicators, Minnesota’s economy has underperformed recently relative to the nation.

• Demographic and economic factors will lead to lower growth of state tax revenues over the next 25 years.

• Minnesota has a long-term structural budget problem, with long-term spending growth likely to outpace revenue growth.

• Health care growth will become the most important factor in controlling rising state expenditures. 

• Minnesota’s general fund tax base has grown more volatile in the past decade, and sState revenue volatility makes long-term budget instability more difficult to manage.

• Replacing highly volatile tax base components with less volatile sources could reduce the volatility of the overall general fund tax system.  However, such changes would also affect revenue growth rates and the distribution of the tax burden among taxpayers.

• Adjusting the mix of state taxes, while remaining tax base and revenue growth rate neutral, cannot significantly reduce revenue volatility without a radical change in tax rates and a dramatic reweighting of tax revenue sources to the system.

• Shifting consumption patterns have reduced Minnesota’s sales tax base.

• Minnesota’s statutory budget reserve ceiling has not grown to an appropriate level to adequately manage the underlying risks in Minnesota’s tax system over time.

• Minnesota needs a cash flow reserve account of sufficient size so that the state can avoid short-term external borrowing during a biennium.