Proper formulations show that state and local spending together have fallen.
Citing information from the conservative Tax Foundation, a recent “Hot Dish Politics” blog item observed that state government spending in Minnesota grew less rapidly than in most other states over the last decade (“Minnesota’s growth in state spending below many,” July 23).
However, the Tax Foundation information still overstated state government growth. Properly adjusted for inflation and population growth, the size of government in Minnesota has declined over the last 10 years.
According to the Tax Foundation, real per capita state government spending in Minnesota (that is, adjusted for inflation), grew by 22.5 percent from 2001 to 2011. The foundation ranked Minnesota 35th among the states in the rate of spending growth over this period.
The problem with the Tax Foundation analysis is that it adjusts for inflation using the Consumer Price Index. The CPI is an appropriate measure of inflation for the typical household consumer, but not for state or local governments. The goods and services that governments purchase are dramatically different from those that typical households buy; for this reason, the state Council of Economic Advisors recommends that a different inflation index — the implicit price deflator for state and local government purchases — be used to adjust state government expenditures.
After an appropriate adjustment for inflation is made using this implicit price deflator, real per capita growth in Minnesota state government spending from 2001 to 2011 is 7.3 percent. Minnesota’s rank among the states in terms of total state spending growth remains 35th.
Another problem with the Tax Foundation information is that it excludes local government spending. Funding and service responsibilities vary among the states — those funded at the state level in one place might be funded at the local level in another. (For example, relative to other states, a large share of K-12 expenditures in Minnesota is paid for with state dollars.) In addition, funding responsibilities can be shifted from one level of government to another over time. For these reasons, interstate rankings of spending growth that focus exclusively on state government spending are not providing a true apples-to-apples comparison.
A better way of gauging the overall change in the size of government among states over time is to focus on state and local government expenditures combined. Comparing growth in combined state and local government spending from 2000 to 2010 (the most recent year for which census data on local government spending is available), Minnesota’s real per capita general expenditures declined by 3.6 percent. Minnesota ranks 46th among the states in terms of change in state and local general expenditure over this period (i.e., in 45 states, real per capita state and local general expenditures increased or declined less rapidly than in Minnesota).
The finding that state and local government spending in Minnesota has declined over the last 10 years is certainly more consistent with the experience of the typical Minnesota resident than is the narrative that spending has increased by 22 percent. Over this decade, class sizes have increased, higher-education costs have skyrocketed and public services have been cut. These trends are not indicative of a state that has increased its public investment by more than 20 percent.
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