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MN Spending Decline Among Nation’s Biggest

September 03, 2013 By Jeff Van Wychen, Fellow and Director of Tax Policy & Analysis

State and local government per capita spending in Minnesota has declined by over seven percent since the beginning of the century through 2011 after adjusting for inflation, based on a Minnesota 2020 analysis of U.S. Census Bureau data. Only four other states have seen a greater decline. Even after the projected spending increases approved for the current biennium during the 2013 session, real per capita state general fund expenditures will likely remain below the FY 2000 level.

These findings are in contrast to a recent report from the right wing Tax Foundation, which asserted that real per capita state government direct spending in Minnesota had increased by 22.5 percent from 2001 to 2011. Also surprising was the fact that Minnesota ranked 35th among the 50 states even with this high rate of spending growth (i.e., 34 states had even more rapid state spending growth over this period).

However, there are some problems with the Tax Foundation analysis. The Foundation adjusted for inflation using the Consumer Price Index, which is an appropriate measure of inflation for the typical consumer, but not for state and local governments. State and local governments do not purchase the same types of items that ordinary consumers purchase and thus inflation affects these governments differently. According to the State Council of Economic Advisors, the Implicit Price Deflator (IPD) for State and Local Government Purchases is a better measure of inflation for state government. This IPD is used by non-partisan House and Senate staff and by the Revenue Department when adjusting government spending for the affects of inflation; based on the IPD, per capita growth in state government direct spending in Minnesota grew by approximately seven percent from FY 2001 to FY 2011.

In addition, a focus on state government spending to the exclusion of local government spending can yield a distorted view of the overall growth (or decline) in the public sector. Over time, various public functions can be shifted from one level of government to another, thereby artificially inflating the rate of spending growth at one level of government while deflating it at the other. For example, the shift of general education costs from the local level to state government in FY 2003 caused a significant increase in state spending, even though the overall level of public expenditures did not change dramatically. A better way of gauging the overall rate change in the public sector over time is by comparing both state and local government expenditures combined.

From FY 2000 to FY 2011, per capita state and local government spending in Minnesota actually declined by $682 (constant 2011 dollars) or 7.2 percent.* Minnesota ranks 47th among the 50 states in terms of the rate of decline in real per capita state general fund spending over this period; the only three states with a greater rate of decline are Michigan, North Carolina, and Oregon. The map below shows the rate of change in real per capita state and local government direct expenditures for all 50 states.

50-state Ranking: Change in State & Local General Expenditures 2000-2011
click on state to view rank & percent change

View Larger Map

Certainly the finding that state and local government spending has declined by seven percent is more consistent with the experience of the average Minnesotan than is the claim of a 22 percent increase. Over the last ten years, real per pupil school revenue has fallen, class sizes have increased, tuition at state colleges and universities have soared, libraries have been closed, and other investments in public services and infrastructure have been reduced. None of this would have been necessary if spending had grown by 22 percent.

The decline in real per capita Minnesota state and local government spending is even steeper if measured from the peak year of FY 2002. From FY 2002 to FY 2011, per capita state and local direct government spending in Minnesota has fallen by $1,063 (constant 2011 dollars) or 10.7 percent. The sharp drop in the public sector over this period is the result of a “no new tax” policy agenda combined with the harshest economic downturn in eight decades.

The increase in spending for the FY 2014-15 biennium approved during the 2013 legislative session will replace some—but likely not all—of the real per capita spending decline that occurred since 2000. By the second year of the current biennium (FY 2015), approximately one-half of the spending decline from FY 2000 to FY 2011 (and approximately one-third of the decline from FY 2002 to FY 2011) will have been restored.† This finding is consistent with an earlier Minnesota 2020 analysis that focused exclusively on state general fund spending. Furthermore, state and local government spending will almost certainly decline as a percentage of the state’s economy.

Conservatives complain vociferously about the growth in government spending under the FY 2014-15 budget set last May. Indeed, some spending growth will occur, but Minnesota 2020 has argued that this growth in expenditures will produce public benefits well worth the cost. Furthermore, even after these increases, real per capita state and local government spending in Minnesota will likely be less than they were a decade ago, despite increased spending pressures resulting from an aging state population and other cost drivers. While no facts will be sufficient to allay the fears of Tea Partiers, a calm analysis of the available information indicates that the size of government under the new budget will not exceed what is necessary to meet the reasonable expectations of the people of Minnesota.

 

*A July 25 Star Tribune commentary by the author focused on state and local government expenditures during the period from 2000 to 2010 because 2011 local government spending information was not yet available. The information in this article updates the analysis in the Star Tribune commentary to reflect the newly released 2011 data. Ideally, this analysis would focus on the period from 2001 to 2011 in order to coincide with the period examined in the Tax Foundation analysis. However, U.S. Census Bureau local government spending information for 2001 is not available.

†A more precise estimate will be possible when the 2013 end-of-session Price of Government report is released, although a truly accurate estimate of local government expenditures in 2015 will not be possible until local government spending data is compiled and reported to the Office of the State Auditor.
 

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6 Comments:

  • wesmouch says:

    September 6, 2013 at 4:42 pm

    Make something up and put it on a web site. It always says the same thing: the overpaid underperforming government needs more money. Get a life

  • wesmouch says:

    September 6, 2013 at 5:26 pm

    Government expenditures have gone through the roof. The columnist uses the “deflator” concept to bamboozle you into thinking that spending has not gone up. Spending has gone up dramatically because of the outrageous pay and pensions, Union featherbedding, and other shennigans carried on by the parasite public Unions. By the way public Union dues are skimmed from the tax payers and then given back to the DFL so they can increase govt spending yet again. The end is Detroit which is the end of the line for the Blue State model. Thankfully the parasite government workers will have their pensions defaulted on. I can’t wait.

    • Jeff Van Wychen says:

      September 9, 2013 at 10:24 am

      The “deflator” that “wesmouch” gripes about is the same inflation adjustment recommended by the State Council of Economic Advisors, non-partisan staff of the Minnesota House and Senate, the Minnesota Department of Revenue, and officials from both the current Dayton administration and the preceding Pawlenty administration.  The only people who appear not to like it are anti-tax zealots who want to overstate government growth by using an inappropriate inflation index.  As for “outrageous pay and pension” growth in the public sector, the Employment Cost Index from the Bureau of Labor Statistics shows that the rate of growth in state & local government wages and benefits over the last decade has been about the same as that of the private sector.  The rest of the comment is the standard right wing boilerplate rant, unsupported and unsupportable by any set of facts.

  • Tim Gieseke says:

    September 9, 2013 at 9:45 am

    I would assume you would receive rather harsh critiques, because the picture is always bigger than the blog. 
    And spending stats are just not believable within this context.

    The bigger picture that I see, is that the government-centric approach to solutions trumps spending on developing solutions.  In the last decade technology, networks, communication etc -that have transformed businesses are now seeping into the large cracks of governance.  The state government will experience these forces, later rather than sooner - a quick primer with a “Governance Compass” : https://prezi.com/6dzq0blll11w/the-governance-compass/

    Talk governance, then talk programs, then talk spending.

  • BJR says:

    September 9, 2013 at 10:03 am

    wesmouch obviously doesn’t understand real (!) data analysis, but prefers to voice the usual (and usally false) conservative diatribe.

    My only comment is that the map lacks a key - would be nice to have that on this page instead of having to go to another page where I have yet to find the legend. Also, as it stands 2 states (AK and HI) are missing.

  • tony says:

    September 9, 2013 at 10:29 am

    Wes, another paid troll passing along the talking points of the Koch Bros. & ALEC. MN govt spending has been on the decline for the last 10 years. That fact has been explained by numerous articles on this website & you will never see any contradictory facts to argue against those numbers, just an angry retort. As a county planning commissioner, I work every week with state & county employees on the many new projects in our growing community. Unfortunately, every year I have to work with fewer workers as govt cuts it’s workforce or they move on to higher paying private sector jobs. Yes, govt employees make less than private employees make doing the same job. Yes, they have pensions. Our parents had pensions, that they worked hard to earn. Why dont you? Are you willing to work for less than your parents? the GOP has convinced the middle-class that getting more pay is un-American, that a good life is to be reserved for the ruling class.  Union dues are paid out of the salaries that union members EARNED and some of it may go to those representatives that are willing to promote the policies that will enhance the middle class. I guarantee that your employers are donating company funds to the representatives that support the policies that will suppress the middle class.