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meeting' the Fiscal Challeri;;~e • Closing the $4.2 billion budget gap required a balanced solution and consideration of every available option. The Governor's budget decisions reflect a prudent mix of one-time resources and spending changes -and permanent °structural" changes. The Governor set early parameters on which decisions were based. State agencies were asked to prepare 20 percent reduction plans. Actual reductions were somewhat less, but vary with individual areas and agencies based on the nature of the functions and priorities. With a clear goal of protecting the classrooms, reductions to E-12 education were significantly less. Health and Human services spending was targeted because it is the fastest growing areas of the state budget and represents over one-quarter of the general fund budget. Tobacco funds and one-time K-12 payment changes were used to mitigate potentially higher reductions, and to provide transition funding to allow budget reductions to be implemented without major service impacts. Budget Reflects Sound Fiscal Management Minnesota currently is ranked AAA by national rating agencies, the highest possible rating. This has not always been the case. Minnesota was downgraded in the early 1980's after the repeated financial crises and special legislative sessions of that period. It took 15 years to regain the AAA rating. For most Minnesotans concerned about services and taxes, this may not seem relevant. It is -because it is a measure of the stability and predictability of state finances. The Governor insisted that the budget meet five important financial management goals: • Resolve the immediate fiscal crisis with afour-year view • Restore stability and predictability to state finances • Rebuild the budget reserve to mange risk of future forecasts • Permanently adjust spending to match revenue growth • Address the shortfall in a responsible way that will permit future investments in priority areas These goals require that state policy makers must pay attention to the state's °structural" balance when making budget decisions. Simply put, the Governor's budget restores revenue and spending balance by FY 2006 and FY 2007. It does not spend more than it collects in taxes and other revenues on a continuing basis. In considering the economic outlook, the Govemor requested that $500 million be placed into the budget reserve as a hedge against a downward revision in future forecasts. Additionally, his budget decisions result in a positive revenue-spending balance of over $700 million in the fiscal year 2007 planning estimates. • Governor's 2004-05 Budget