In 2022, Minnesota spent $40,000 on welfare per person in poverty

Every year, the U.S. Census Bureau publishes the Annual Survey of State and Local Government Finances. This is the country’s only source of state and local spending data for all the states, allowing a detailed state-by-state comparison. The survey also divides spending data into categories, making it possible to analyze which public services states prioritize.

Overall, public welfare is the biggest expenditure for most states. However, the level at which states prioritize welfare spending over other categories, such as education, differs.

Minnesota, for instance, has a massive welfare system, dedicating a larger share of revenue to public welfare than most states. Additionally, Minnesota has one of the highest levels of poverty-adjusted welfare spending in the country, making it one of the most generous states as well.

In a report published earlier this year, American Experiment found that in 2021, Minnesota spent $18.9 billion on public welfare. This amounts to 27.6 percent of all direct general expenditures. The U.S. share of spending dedicated to public welfare in 2021 was 23.4 percent.

Minnesota spent the equivalent of $36,400 on public welfare per person in poverty and ranked second-highest among the 50 states. Only Massachusetts spent more than Minnesota.

While the federal government increased funding to the states during the pandemic, potentially bloating state budgets, Minnesota’s generosity predates the pre-pandemic period. In 2019, Minnesota spent $36,400 (in 2021 $) on public welfare per person in poverty. Only Massachusetts and Alaska spent more than Minnesota.

This trend continued in 2022, as newly released data from the U.S. Census Bureau reveals.

A 2022 update

According to the most recent Annual Survey of State and Local Government Finances, Minnesota’s state and local governments spent nearly $22 billion on public welfare in 2022. Adjusted for poverty, Minnesota spent the equivalent of $40,280 — about $38,500 in 2021 $ — on public welfare per person in poverty.

Among the 50 states, only Massachusetts spent more than Minnesota, much like in 2021. The Median state, (Illinois), spent 59 percent of Minnesota’s amount. Alabama — the lowest-spending state for 2022 — spent $10,903 on welfare per person in poverty. This is only 27 percent of what Minnesota spent.

Figure 1: Total state and local spending on public welfare per person in poverty, FY 2022

Public welfare accounted for 30 percent of total direct general expenditure in Minnesota, up 2.76 percentage points from 2021. Nationally, the share of spending dedicated to welfare was 24 percent — up only 0.7 percentage points from 2021. The median share among the 50 states was also 24 percent.

Figure 2: State and local spending on public welfare as a share of total direct general expenditure, FY 2022

Growing welfare spending poses serious risks to the state budget

In 2023, Minnesota had an $18 billion surplus. During the 2023 legislative session, lawmakers spent most of this surplus by expanding existing government programs and creating new ones. Welfare programs were the biggest beneficiary, getting over $6 billion in new spending between 2024 and 2027.

Since the U.S. Census Bureau data lags by two years, this new spending won’t be reflected in the Annual Survey of State and Local Government Finances until 2026. However, looking at state data, it is clear why this continued expansion of an already generous welfare system is risky for the state budget and the state’s economy.

For one, the state government must allocate limited tax revenues among unlimited wants and needs. A growing share of welfare spending, therefore, means less revenue available for other budget priorities. According to data from Minnesota Management and Budget (MMB), welfare programs, under Health and Human Services, accounted for 30 percent of Minnesota’s general fund spending in the 2023 fiscal year. That share is expected to reach 35 percent in the 2026-27 biennium. This means less revenue for roads and other, potentially more vital, public services.

Additionally, despite an $18 billion surplus, lawmakers raised taxes and fees on Minnesotans by $10 billion to fund new spending. This will likely mean reduced investment and, consequently, low economic growth. Yet even with new taxes and fees, MMB estimates that tax collections won’t be enough to cover Minnesota’s bigger budget in the 2026-27 biennium. Ergo, persistent budget deficits could follow.

Not to mention that Minnesota — much like most of the developed world —  is experiencing an aging population. This demographic shift will lead to a declining workforce and fewer taxpayers, while simultaneously increasing the demand for programs serving the elderly, putting further pressure on the budget.

In short, for the sustainability of the state budget, something must be done about Minnesota’s expanding welfare system.