Tom Emmer is telling Minnesotans that state revenue is growing by more than seven percent, while state spending is growing by 17 percent, according to a recent MinnPost article. Both claims are misleading. Today we’ll examine Rep. Emmer’s revenue claim. Tomorrow we’ll shift to the expenditure claim.
Part one of a two-part series
The seven percent growth claim is apparently based on a comparison of projected general fund “total resources available.” These “resources” are projected to grow from $31 billion in the FY 2010-11 biennium to $33.2 billion in the fiscal year (FY) 2012-13 biennium-an increase of 7.1 percent.
So why is this number misleading? Because a comparison of general fund “total resources available” does not take into account the decline in federal recovery dollars from FY 2010-11 to FY 2012-13. The claim of 7 percent revenue growth based on total resources available overlooks the loss of approximately $2 billion in federal dollars that was used to reduce general fund spending in the FY 2010-11 biennium.
It should also be noted that state revenue collections in FY 2010-11 were abysmally low as a consequence of the great recession. Largely as a result of this, state general fund “total resources” fell by 9.7 percent from FY 2008-09 to FY 2010-11. In fact, total real* (i.e., inflation-adjusted) per capita state general fund total resources during the FY 2010-11 biennium are projected to be lower than at any point during the last two decades.
Thus, in comparing projected FY 2010-11 general fund revenue to FY 2012-13 general fund total revenue, Rep. Emmer is not only failing to account for the sharp decline in federal assistance, he is also choosing as his baseline for comparison the biennium in which real per capita general fund total resources were at their lowest point in more than 20 years. If we choose a different baseline year for comparison, a much different picture emerges. For example, from FY 2008-09 to FY 2012-13, general fund total resources are projected to fall by 3.3 percent, even before adjusting for inflation and population growth; in real per capita dollars, the decline is 10.8 percent.
General fund “total resources available” can be a flawed basis for examining the actual change in state revenue over time. Not only does it not account for federal recovery dollars, but it can also be skewed by the large positive or negative balances carried forward from the preceding biennia.
The Price of Government (POG) report from Minnesota Management & Budget gives a more comprehensive view of total state revenue in FY 2010-11 and FY 2012-13. The POG report includes all revenues received by the state, including federal dollars. Based on projections from the most recent POG report, total state revenue in FY 2012-13 will be $1.7 billion (2.8 percent) less than in FY 2010-11. This decline is driven by a large decline in federal dollars from FY 2010-11 to FY 2012-13.
Changes in government revenue over time should be adjusted for decline in the purchasing power of the dollar. After adjusting for inflation, total state revenue is projected to decline by 6.2 percent from FY 2010-11 to FY 2012-13. If we further adjusted for population growth, the projected decline in real per capita state revenue is 7.6 percent.
Rather than growing by seven percent, total state revenue from all sources is projected to decline from FY 2010-11 to FY 2012-13, even before taking into account inflation and population growth. Rep. Emmer’s claims regarding state government revenue appears to be part of a broader agenda to bolster support for a “no new tax” agenda by exaggerating growth in public sector growth. Another example of this is Emmer’s claim regarding state spending growth-the subject of tomorrow’s article.
*The inflation adjustment here is based on the implicit price deflator for state and local government purchases, which is the appropriate measure of inflation for state and local governments.