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' 1~-eeting the Fi~c~l C]ll~n ~.: C, An Opportunity for Change It is clear now that the U.S. economy is taking longer than expected to recover from the economic downturn of the last year. This fact, combined with rapidly growing state spending, has contributed to the $4.2 billion shortfall faced in putting together the FY 2004-05 budget. This shortfall is by far the most dramatic fiscal crisis Minnesota has ever faced. Governor Pawlenty's budget addresses this fiscal crisis -and uses the resolution of Minnesota's fiscal problem as an opportunity to make the necessary, critical changes to position Minnesota for the future. The changes reflected in the budget are not an end, but rather must be part of a different vision of state spending and government and the beginning of change. The Governor's budget is premised on the strong belief that Minnesota can resolve the fiscal crisis and emerge with more efficient government, stronger communities and a different blueprint for the future. Unless action is taken to change state spending trends, taxes and financial resources that will be available over the next decade will not be sufficient to avoid chronic and recurring deficits. Tough Choices The f=Y 2004-05 budget defines how the Governor intends to use the state budget to provide essential services to Minnesota citizens while limiting government to its most appropriate roles. The plan is carefully designed to pay for needed state services and preserve the state's economic and fiscal health for the next four years. The Governor's budget was based on five key goals: • Improve educational achievement • Ensure public safety • Ensure adequate health care • Increase jobs and economic opportunity • Enhance transportation With a shortfall of the magnitude faced by the state, no area of the budget could be held totally harmless. However, the budget reflects these key goals and minimizes the impact of reductions to the greatest extent possible. It is important to understand the nature of the state's forecast shortfall. The state is currently spending $1.9 billion more in the current budget than it is collecting. This "hole" was filled largely by depleting budget reserves and by using one-time monies to fill the gaps. Even with a slowdown in economic growth, state taxes and other revenues will grow $1.7 billion, 6.6 percent over the current two-year budget. This is not enough to fill the current gap in spending, much less provide for growing costs in all areas of the budget. Without action -the problem continues into the future. Spending would have exceeded revenues through the FY2006-07 planning horizon by over $2 billion dollars. How Decisions Were Made The Governor's budget acts to correct this revenue-spending imbalance. The budget reflects the belief that the budget can be balanced and .necessary changes can occur without increasing taxes. The fact that Minnesota continues to be ranked 6~' highest nationally in total state and local spending indicates that there is capacity to reduce spending and still provide high quality services to citizens. The FY 2004-05 budget will spend one billion dollars more than the current biennium -just less than interest groups and spending systems would advocate. Governor's 2004-05 Budget