As noted in yesterday’s article, real per capita state general fund spending is projected to drop by seven percent from fiscal year (FY) 2002-03 to FY 2012-13 after adjusting for takeovers and accounting shifts. However, all of the decline occurred by FY 2006-07. Since then, real per capita general fund spending has increased by 4.9 percent.
The growth in general fund spending since FY 2006-07 has been driven almost entirely by growth in health and human services (HHS) expenditures. While real per capita HHS spending is projected to increase by 24.4 percent from FY 2006-07 to FY 2012-13, remaining general fund spending is projected to decline by 2.1 percent.*
Part Two of a Two-Part Series
So HHS is the major driver of general fund spending growth. While HHS spending has increased, all other general fund spending collectively has declined.
However, the range of services that falls under the umbrella of “health and human services” is broad and ranges from the Minnesota Family Investment Program (MFIP) to child support enforcement to General Assistance Medical Care (GAMC) to Medical Assistance (MA) for the elderly and disabled. The full range of programs that fall into the HHS category are listed on pages 10 and 11 of the state’s February forecast “General Fund Fund Balance Analysis.”
Not surprisingly, the rate of growth varies from one category of HHS spending to another. The following analysis compares two subcategories of HHS:
- Children & family services and income maintenance. Includes economic assistance grants (such as MFIP) and support and assistance for children. This category is projected to comprise 11 percent of general fund HHS spending in FY 2012-13.
- Long-term care, elderly & disabled medical assistance (MA). Consists primarily of various forms of state support for elderly and disabled people. The largest program here is long-term care medical assistance. This category is projected to comprise 57 percent of HHS spending in FY 2012-13.
These two broad categories are designed to contrast programs for low-income families and children-what some refer to collectively as “welfare”-to programs that assist the elderly and disabled.
Real per capita spending for “children & family services/income maintenance” is projected to grow by 38 percent from FY 2006-07 to FY 2012-13, while “long-term care, elderly & disabled MA” is projected to grow by 31 percent. The increase in spending on programs for low-income families and children is somewhat expected, given the number of job losses and decline in family income associated with the great recession. The increased spending for the elderly and disabled is also somewhat predictable, given the state’s aging population and rising health care costs.
While the rate of growth in spending for the two categories of programs is similar, spending on programs for the elderly and disabled comprises a much larger share of all projected HHS spending growth because these programs comprise a larger share of the HHS budget. The graph below shows the share of projected real per capita state general fund HHS growth from FY 2006-07 to FY 2012-13 divided between: (1) children & family services / income maintenance, (2) long-term care, elderly & disabled MA, and (3) all other HHS spending.
From FY 2006-07 to FY 2012-13, approximately two-thirds of all HHS growth will be on programs for the elderly and disabled, while about one-sixth will be on programs for low-income families and children.†
Several years ago, I heard a story-perhaps apocryphal-of two legislators debating the cause of growth in HHS spending. One legislator blamed the growth in HHS spending on “welfare mothers,” to which the second legislator responded, “it’s not welfare mothers-it’s your mother.” The point of the second legislator is that growth in HHS spending is not driven primarily by poor folks, but by our aging population. Based on the above analysis, the second legislator was correct.
Four major points can be derived from this two part series:
1. Since FY 2002-03, real per capita general fund spending has fallen. From FY 2002-03 to FY 2012-13, per capita general fund spending is expected to fall by 7.3 percent in constant dollars after adjusting for shifts and takeovers.
2. This decline occurred entirely from FY 2002-03 to FY 2006-07. In fact, since FY 2006-07, real per capita general fund spending is projected to grow by 4.9 percent.
3. This growth is driven by increased health and human service spending. Excluding HHS, remaining real per capita state general fund spending declined since FY 2006-07.
4. The growth in HHS spending is not driven primarily by programs for low-income families and children, but by programs for the elderly and disabled.
Based on this analysis, it is clear that generic rants about growth in government are both inaccurate and unhelpful. Even after the HHS-driven spending growth since FY 2006-07, real per capita state general fund spending is still projected to drop by over seven percent from FY 2002-03 to FY 2012-13, based on a meaningful “apples to apples” comparison of spending over time. This decline in spending has lead to a serious disinvestment in public education and infrastructure; Minnesota will not be able to compete in a global economy if these trends continue.
At the same time, it must be noted that the current rate of growth in HHS spending is unsustainable in the long term. However, growth in HHS spending is not primarily the result of “welfare moms” who are ripping of the system. Rather, HHS spending growth is driven by the state’s aging population combined with spiraling health care costs. No progress will be made toward addressing surging HHS spending until we correctly identify its root causes.
*As in part 1, the inflation adjustment in this analysis is based on the implicit price deflator for state and local government purchases (S&L IPD), which is the appropriate measure of inflation for state and local governments. However, the S&L IPD functions as a measure of inflation across the entire array of goods and services purchased by local governments and may not be representative of inflationary pressures within subcategories of spending. For example, inflation in health care expenditures is significantly greater than inflation in other areas. However, in this analysis the S&L IPD is applied to HHS spending so that HHS growth can be compared to growth in the entire state general fund.
†The percentages above show the distribution of HHS growth in real per capita dollars. When examined in nominal dollars (i.e., unadjusted for either inflation or population growth), “long-term care, elderly & disabled MA” comprises 63.8 percent of projected general fund growth from FY 2006-07 to FY 2012-13, while “children & family services / income maintenance” comprises 13.4 percent and all other HHS spending comprises 22.8 percent.