Cities, counties, and schools bear the brunt of declining public revenue

A recent Minnesota 2020 report demonstrated that government revenue in Minnesota has shrunk relative to other states. Minnesota currently ranks 30th among the 50 states (two percent below the U.S. average) in state and local government revenue per $1,000 of personal income.

Not only has public revenue in Minnesota shrunk relative to other states, but it has also shrunk in absolute terms as well. Real per capita state and local government revenue in Minnesota for the current year will be 3.7 percent less than it was six years ago.

This conclusion is based on projections from the May 2008 “Price of Government” (POG) report prepared by the Minnesota Department of Finance, adjusted for inflation in state and local government purchases. The May 2008 POG report reflects changes enacted during the 2008 legislative session. The graph below shows the change in public revenue from 2002 (corresponding to fiscal year 2003) to 2008 (corresponding to FY 2009).

Anti-tax zealots will argue that the current “no new tax” policy has not actually cut government revenue, but merely slowed its rate of growth. POG data proves that this claim is false. Over the last six years, per capita public revenue in Minnesota has not kept pace with inflation, so the real purchasing power of this revenue has fallen.

Real per capita state government revenue declined by 6.8 percent over this six year period. However, by itself this statistic is misleading. State government dealt with its decline in revenue by cutting the dollars that it shares with local governments. If we subtract the revenue that state government shares with local governments, real per capita state government revenue actually increased by 5.3 percent from 2002-03 to 2008-09.

The decline in public revenue has hit local governments much harder than it has hit state government. Real per pupil school district revenue declined by 3.4 percent over the last six years. Thus, during a period when school mandates were expanding because of the No Child Left Behind act and special education costs were increasing, real public school revenue was declining.

The revenue loss for Minnesota counties and cities was even greater. From 2002 to 2008, real per capita city revenue declined by 11.8 percent, while real per capita county revenue declined 13.2 percent. (The county revenue decline percentage includes an approximate adjustment for the state takeover of court administration costs; without this adjustment, the decline in county revenue would have been greater than 13.2 percent.)

Despite increases in property taxes, school, city, and county revenue has declined. Real per capita/per pupil increases in property taxes have not been sufficient to replace state aid cuts, so total local government revenue has fallen.

In his weekly radio broadcast, Governor Pawlenty argued that “They [local governments] have to learn to control their spending.” For the Governor to lecture local governments about the need for frugality reflects either ignorance or hypocrisy. During the time that Tim Pawlenty has been governor, local government revenue has declined more rapidly than state government revenue.

While repeatedly proclaiming the need for accountability in government, Governor Pawlenty and his “no new tax” allies have shifted most of the impact of the decline in public revenue on to local governments and local property taxpayers by dramatically reducing the dollars that state government shares with local governments.

Two things need to be done to restore true accountability to public finances in Minnesota. First, elected officials of all political persuasions need to acknowledge that public revenue in Minnesota has not kept pace with inflation. Second, state leaders need to stop using the complexity of the state-local fiscal relationship to shift the most severe effects of this revenue decline on to Minnesota counties, cities, and schools.