Back with a Vengeance: State Government Spending Increases 17.6%

by Howard Stephenson

After flat or moderate budget growth from 2001 to 2004, state government growth has re-accelerated to levels that surpass growth rates of even the 1990s, according to a recent analysis by the Utah Taxpayers Association Public education spending is up $243 million or nearly 13% while Esecutive Offices and Criminal Justice is up 10%, Capital Facilities 66%, Human Services 16% and Commerce/Revenue is up 14%.

Annualized State Government Growth

1. Amount includes general fund revenues earmarked for transportation and water and excludes mineral lease and
gas tax revenues. 2. Inflation and population growth figures for 2006 and later are estimated. 3. Amounts exclude supplemental appropriations for 2004 and 2006 since 2007 supplemental appropriations will not be determined until the 2007 General Session. Calculations by Utah Taxpayers Association based on data from
Governor’s Office of Planning and Budget (1994 to 2004), Legislative Fiscal Analyst Appropriations Report (2004 to 2006),
LFA State Budget Overview (2006 to 2007), Census Bureau, Bureau of Economic Analysis

Comparing Apples to Apples: “Official” growth rates are understated

Policy makers sometimes understate government expenditure growth, particularly when comparing next year’s budget with the current fiscal year budget. Every year, the Legislature reviews two budgets: the current year budget and next year’s budget. Typically, the current year budget is supplemented with new, one-time revenues. Comparing the current year supplemental budget with next year’s appropriations without supplementals makes the spending increase appear smaller than it is.
According to “official” government documents, FY2007’s uniform school fund/general fund (USF/GF) expenditures will increase 16.3% over FY2006.
However, FY2006 expenditures include supplemental appropriations, and supplemental appropriations for FY2007 will not be known until next March. Therefore, the basis for comparison should be the pre-supplemental appropriations for FY2006, which yields a government growth rate of 17.6%.

Wasn’t the Legislature Simply Making Up for the Lean Years?

USF/GF expenditures were flat from 2001 to 2004. However, the years prior to 2001 were years of significant government expenditures growth.
As the chart above demonstrates, USF/GF expenditures grew at an annualized rate of 5.6% from 1994 to 2004, a time period that includes the three lean years. The rate of growth exceeded population growth and inflation of 4.9% Since 2004, annualized USF/GF expenditures have increased 11.2%, and total expenditures have increased 9.0% annually, well in excess of inflation and population growth of approximately 5.8%.

Should Taxpayers Worry about Increases in Capital Expenditures Such as Transportation Infrastructure?

Some policy makers argue that increased government spending on capital projects such as transportation and buildings does not “grow” government because these are one-time expenditures and no state employees are permanently hired. Moreover, if projected revenue increases do not materialize, capital projects can be postponed or canceled whereas recently hired state employees are not likely to be fired. While a 10% increase in one-time expenditures is less problematic than a 10% increase in ongoing expenditures, one-time expenditures are still tax dollars and should not be dismissed as “not growing government.”

Wasn’t Most of the Expenditure Increase Due to Transportation and Federal Cutbacks in Health and Human Services?

Increases in School Funds/General Funds Spending

Note: Since FY2007 supplemental appropriations will not be determined until the 2007 General Session, the appropriate basis for comparing FY2007 with FY2006 is the FY2006 original budget. Source: LFA’s State Budget Overview for FY2007 and LFA’s Appropriations Report

General fund expenditures for transportation capital have increased significantly in the past couple of years, but much of this has been used to offset the more than $200 million that was diverted from transportation during the last recession. The impact of federal reductions in health and human services was approximately $19 million, or about 0.4% of total school funds/general funds revenues.

Even if transportation is excluded, FY2007’s USF/GF expenditures increased 12% over FY2006’s original budget. Several non-transportation budget items received huge spending increases, as demonstrated on the corresponding chart.

Spending Milestones
The accompanying chart shows total state government growth in one-billion dollar increments. Before 2005 it was typically three years between each new billion dollar growth in state spending. However fiscal years 2005, 2006, and 2007 each grew by a billion dollars.

Are Spending Increases of These Magnitudes Inevitable in the Future?

Unless state government adopts fundamental changes in public education, transportation, water development, Medicaid, and other areas, significant government expenditure growth is inevitable.

Parental choice – vouchers for students from low and moderate income families and more charter schools — and merit pay are needed if government is going to improve education while avoiding massive expenditure increases in K-12 education.

Toll roads, HOT lanes, and congestion pricing will cause commuters to change driving patterns. While tolls are certainly a form of taxation, future capital and operation expenditures for transportation will grow at a much lower rate if commuters have a financial incentive to telecommute, car pool, commute during off-peak hours, or live closer to work.

Similarly, state and local expenditures for water development will grow at a much lower rate if users have financial incentives to consume less water.