State could face $7 billion deficit
ST. PAUL -- Baby boomers are beginning to retire, and their need for more health care is a main reason Minnesota's state budget looks bleak for years to come.
"We are facing a significant long-term budget problem," State Economist Tom Stinson told a House-Senate committee Monday.
Stinson called the situation "not sustainable."
State Demographer Tom Gillaspy warned that the first wave of baby boomers will be eligible for Social Security in 2011, the first of at least 15 years of a huge population shift.
"We will see very large increases of people in their 50s and 60s and fewer people in their peak earning years," Gillaspy said, indicating that fewer taxpayers will be available to fund health care the new elderly need.
Gillaspy said that as the size of the workforce shrinks, Minnesota's only option will be "to increase how much everybody does in the workforce."
In an interview, Gillaspy and Stinson explained that Minnesotans do not need to work longer hours; they need to take advantage of new technology and other ways to increase production. That is what has happened in farming, Gillaspy said.
The discussion came as the joint legislative committee began to look at ways to deal with increasing budget problems.
Legislative fiscal analysts Monday predicted that the deficit for Minnesota's next budget, which begins July 1, 2012, could top $7 billion in a budget that could be more than $38 billion.
While the recession's impact will continue to keep tax revenues down, the big change in the next few years will be a demand for more health spending, Stinson and Gillaspy said.
In a couple of years, 50,000 to 60,000 Minnesotans a year will turn retirement age, Gillaspy said, with the number rising to 70,000 to 80,000 annually in the next decade and a half. At the same time, fewer Minnesotans will be in the state's workforce, so there will be fewer taxpayers.
It's a story Stinson and Gillaspy have told to anyone who would listen since the mid-1990s.
"It's beginning to sink in a bit," Gillaspy said, adding that the problem is "a slow train wreck."
Many rural counties already have experienced problems with an aging population, the demographer said, but suburban and exurban counties will fight it in coming years.
Stinson said the fiscal answer is like what has happened in years past: "Replacing the buggy whip with fuel injection systems."
However, Gillaspy and Stinson stop short of telling lawmakers how to spend money to improve productivity.
Still, Stinson did some advice: "You can't place all your bets on one particular thing."
He also said Minnesota will have to spend money to get to the next stage of worker productivity.