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Minnesota Communities: The Biggest Budget Cutters

June 10, 2009 By Jeff Van Wychen, Fellow and Director of Tax Policy & Analysis
A right-wing blogger gives Governor Pawlenty credit for halting "outrageous growth" in state government spending since 1960.  As noted in yesterday's article, the claims regarding excessive growth were overly simplistic at best.  Similarly, the veneration of Tim Pawlenty as the bringer of frugality is also misplaced.

There is no doubt that total state government revenue has shrunk during Pawlenty's time as governor.  The blogger understates the decline in state government during the Pawlenty years through use of an inappropriate inflation adjustment.  Real per capita state revenue is projected to fall by 5.9 percent from fiscal year (FY) 2003 to 2008* if we adjust for inflation using the index recommended by non-partisan experts.

However, this statistic alone gives an incomplete picture of the change in the size of state government.  A portion of state revenue is shared with Minnesota's Communities in the form of state aid.  In constant 2008 dollars, total state revenue fell by $331 per capita from FY 2003 to FY 2008, while the revenue that state government shares with local governments declined by $501 per capita.  In other words, excluding the dollars shared with local governments, state revenue increased by $169 per capita from FY 2003 to FY 2008.

It is apparent that during the Pawlenty years, the state dealt with its revenue shortage not by cutting the size of state government itself, but by slashing the dollars that the state shares with local governments.  Excluding the dollars shared with communities, real per capita state revenue grew by 5.2 percent from FY 2003 to FY 2008, while the real per capita dollars shared by the state with local governments fell by 21.7 percent.  As a result of these state aid cuts, real per capita local government revenue-even after including additional dollars generated from property taxes and other sources-fell by 8.5 percent over this five year period.

Given changing demographics and increased human service needs resulting from the recession, a one percent annual growth rate in retained state government revenue is by no means excessive.  However, local governments, faced with similar challenges, actually reduced their revenues at an average annual rate of nearly two percent.

The contraction in the state budget that occurred during the years of the Pawlenty administration was not the result of frugality within state government per se.  Rather, the contraction was made possible only because state policymakers-largely at the insistence of Governor Pawlenty-shifted their revenue problems on to the backs of local governments.

State aid payments to local governments were never intended to serve as a slush fund that state officials can raid in order to prevent cuts in state government or increases in state taxes.  However, this is precisely how Governor Pawlenty has used it.  To add insult to injury, Pawlenty then has proclaimed that "They [local governments] have to learn to control their spending."  For the Governor to chide local governments about the need for frugality reflects either ignorance or hypocrisy.

The shrinkage in local government revenue has been anything but an unmitigated blessing.  Class sizes are increasing as teachers are laid off.  Investment in parks and libraries are being slashed and road and infrastructure maintenance has been deferred.  Even public safety budgets have been hurt.  The decline in public investment has coincided with a deterioration in Minnesota's economic performance relative to other states.

Regardless of the impact, however, the real budget cutters in Minnesota over the last several years have been at the local level, not the state.  To the extent that right wingers need someone to lionize for shrinking government, their praise should be directed to the mayors, council members, commissioners, and board members that Governor Pawlenty criticizes.

*This percentage was calculated using information from the 2009 February forecast "price of government" (POG) report from Minnesota Management & Budget.  The blogger's analysis terminates with FY 2008 (the most recently completed state fiscal year) and is based on consolidated fund spending, also from Minnesota Management & Budget.  This analysis also terminates in FY 2008, but is based on POG data because it is easier to separate out the portion of state revenue that is shared with local governments using the POG.  The decline in real per capita state revenue from FY 2003 to FY 2008 is somewhat less than the decline in real per capita consolidated fund spending over the same period.

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