Conservative legislators want to freeze per capital state general fund revenue. Here’s the problem. After adjusting for inflation, per capita state revenue for the current biennium is at its lowest point since the FY 1990-91.
For the current FY 2010-11 biennium, total general fund resources are projected to be $30.5 billion. On an annual basis, this comes to about $2,840 for every man, woman, and child in the state.
The shocking news is that at no time in nearly two decades have general fund current resources been this low. For example, in constant FY 2010-11 dollars,* per capita state general fund current resources in FY 1992-93 was about $2,930-three percent higher than in the current biennium.
The current low ebb in general fund revenue needs to be placed in context. About nine years ago, a GOP controlled House, a DFL controlled Senate, and an Independence Party Governor enacted legislation that shifted nearly 100 percent of state general education costs into the state general fund. Despite the fact that significant new funding obligations have been shifted into the state’s general fund over the last two decades, real (i.e., inflation-adjusted) per capita general fund revenues are less today than they were in FY 1992-93.
GOP leaders in the Minnesota House and Senate are declaring that the projected five percent revenue growth from FY 2010-11 to FY 2012-13 should be ample. However, this line of reasoning overlooks at least two key points.
First, the five percent growth–about $1.5 billion–is insufficient to replace the loss of $2.3 billion in federal recovery dollars that will occur in FY 2012-13. For this reason, total state “all fund” revenue, which includes federal assistance in addition to general fund revenue and other state resources, is projected to decline by approximately $1.0 billion from FY 2010-11 to FY 2012-13, even prior to adjusting for inflation and population growth.
Second, the five percent growth in general fund current resources touted by the GOP leaders is scarcely sufficient to keep pace with inflation and population increases. In others words, the GOP leaders are proposing to leave real per capita general fund revenues at the same 20-year low in FY 2012-13 that they were at in FY 2010-11.
Actually, this statement is not quite true. GOP leaders are proposing significant business tax cuts in the upcoming biennium that would leave real per capita general fund revenues even lower than they were in FY 2010-11. And keep in mind that real per capita general fund current resources for FY 2010-11 are already 17 percent less than they were in FY 2002-03, the year of the state takeover of general education funding.
The decline in general fund revenue is not just the result of the great recession. Even before the economic collapse of 2008, the decline in real per capita current resources was underway as a result of “no new tax” policies. Continuing these policies might make sense if they had delivered the promised turn-around in Minnesota’s economy. But they have not. Over the last eight years, Minnesota’s performance relative to other states has deteriorated in terms of job, income, and GDP growth. The policy of tax slashing and disinvestment has failed.
It makes no sense to continue pursuing policies that have not worked. In keeping with the advice of Minnesota’s best policy thinkers, the state needs to invest in education and infrastructure. This would provide the increase in productivity that Minnesota’s economy needs to rebound. We will not be able to make these investments on a new-no-tax starvation diet that drives state revenues to new depths from one biennium to the next.
*All inflation adjustments in this analysis are based on the implicit price deflator for state and local government purchases, which is the appropriate measure of inflation for state and local governments.