2013 Budget Replaces Small Portion of Past Cuts
A decade of conservative fiscal dominance drained so much money from Minnesota's state general fund that recently enacted legislative investments only replace a small portion of the total inflation-adjusted cuts.
The FY 2014-15 budget approved by the Legislature during the 2013 session is projected to replace approximately one-sixth of the decline in real per capita state general fund spending over the last decade, based on Minnesota 2020’s analysis of end-of-session state budget information from Minnesota Management & Budget (MMB). By FY 2016-17—when all of the spending increases in the new budget are fully phased-in—the increase in total general fund expenditures is projected to replace only about one-third of the decline since FY 2002-03.
In nominal dollars (i.e., unadjusted for inflation), state general fund expenditures will increase from $35.442 billion in FY 2012-13 to a projected $38.349 billion in FY 2014-15—a growth of $2.9 billion or 8.2 percent. Based on MMB planning estimates, general fund spending will increase by another $2.4 billion or 6.2 percent from FY 2014-15 to FY 2016-17. (The average annual rate of spending growth from FY 2013 to FY 2017 is projected to be 2.1 percent.*) The projected growth in state general fund spending over the next two biennia is significant, although it is less than the anticipated growth in Minnesota’s gross domestic product over this four year span. Thus, the size of state government relative to the size of state’s economy is shrinking, despite the spending increases in the 2013 budget.
In order to get a true “apples-to-apples” comparison of general fund spending over time, it is necessary to adjust for inflation, population growth, one-time federal stimulus dollars, and various state accounting maneuvers, such as the school funding shifts and the sale of tobacco bonds. For a table listing each adjustment, the reason for the adjustment, and the amount of the adjustment for each biennium from FY 2002-03 to FY 2016-17, click here. The spending amounts cited below are based on the adjusted annualized per capita amounts presented in the bottom row of this table, which are expressed in constant FY 2012-13 dollars.
Adjusted state general fund spending is expected to grow from an annual average of $3,240 per capita during the FY 2012-13 biennium to $3,360 in FY 2014-15 (3.7 percent growth) and to $3,472 in FY 2016-17 (3.3 percent growth).† The combined 7.2 percent real per capita growth in state spending over this four year period is significant, but should be considered in the context of the decline in state investment that occurred over the course of the preceding decade.
As noted in an April 2013 Minnesota 2020 report, adjusted per capita state general fund expenditures fell dramatically from FY 2002-03 to FY 2012-13. An updated analysis‡ reveals that real per capita general fund spending has declined from $3,883 in FY 2002-03 to $3,240 in FY 2012-13—a decline of 16.6 percent. A significant portion of this decline is attributable to the sharp decline in state revenue associated with the Great Recession, although state general fund expenditures were decreasing even before the recession began in December 2007. In fact, most of decline in adjusted real per capita state general fund spending since FY 2002-03 had occurred by FY 2006-07. The bulk of the decline in general fund expenditures is the result of conservatives’ “no new tax” agenda, not the Great Recession.
While the increase in state expenditures under the budget passed by the Legislature during the 2013 session for FY 2014-15 is significant, it will replace only 18.6 percent of the spending decline since FY 2002-03. The subsequent expenditure increase in FY 2016-17 will still be sufficient to replace only 36.0 percent of the spending decline since FY 2002-03. Even after the spending increases approved by the Legislature in 2013 are fully phased-in, annual per capita general fund spending will be over $400 (10.6 percent) less than it was in FY 2002-03.
The conservative critique of the progressive 2013 budget emphasizes the state expenditure increases, but ignores the benefits that these new investments will make possible, including a significant reduction in property taxes through an expanded homestead credit state refund, an increased renters’ property tax refund, and a partial restoration of past state aid cuts. Also ignored is the increase in funding for K-12 and higher education, the tuition freeze at the U of M and state colleges and universities, funding for all-day kindergarten and early childhood education, as well as a variety of new investments in job training, business development, affordable housing, and affordable healthcare. Furthermore, all of this was achieved while balancing the state budget in a responsible fashion, without shifts and gimmicks.
Nonetheless, the budget passed during the 2013 session was not the spending spree that conservatives allege. As noted above, real per capita state general fund expenditures remain over ten percent less than they were a decade ago and are shrinking as a share of Minnesota’s total economy. Governor Dayton and his legislative allies can boast of a lengthy list of accomplishments while only restoring a portion of past budget cuts. This was a decisive victory for a balanced, progressive approach to state finances.
*General fund spending in the second year (FY 2013) of the recently completed biennium (FY 2012-13) is $18.862 million—$2.3 billion (13.8 percent) greater than in the first year of the biennium (FY 2012). Because FY 2013 spending is so much greater than the FY 2012 spending, the rate of spending growth over the next four years is considerably lower if growth is calculated from an FY 2013 baseline instead of from FY 2012-13. Much of the spending growth from FY 2012 to FY 2013 is attributable to the pay back of a large portion of the school funding shift during FY 2013.
†The spending increase from FY 2014-15 to FY 2016-17 is largely attributable to the fact that many of the initiatives approved during the 2013 session—including the state aid and property tax refund increases—will increase state spending in only the second year of the FY 2014-15 biennium, but both years of the FY 2016-17 biennium.
‡The general fund spending analysis presented in this article differs from the analysis in the April 2013 report in that it reflects changes in the new budget enacted in May. In addition, the analysis presented here omits the adjustment for the state takeover of general education funding because the data necessary to make this adjustment for FY 2014-15 and FY 2016-17 are not currently available.