Minnesota Spending 101: Smart Budgeting for an Era of Limits
Executive Summary
Every two years Minnesota lawmakers must set a budget for the next biennium. Their central task is to decide how much money to spend and where to spend it. Minnesotans need a state government that protects the fruits of their labor while providing core services and protections such as an efficient infrastructure, high quality education and a safety net for those most in need. It is a truism that bears repeating: all of these core state services depend on a robust private economy. Too much government spending—and spending on the wrong things—will leave core services underfunded while discouraging the private investment and entrepreneurial spirit that supports private and public prosperity.
This report provides vital information to help understand and evaluate state spending.
The need for spending restraint. In Part I, the report explains why Minnesota must restrain—and perhaps redirect—the growth of state spending. While today’s balance sheets are an improvement over recent budgets, a number of factors (namely demographics, globalization, health care spending, pension liabilities and reductions in federal grants due to federal debt) threaten to throw future state budgets out of balance no matter what governing philosophy predominates.
How viable is it to restrain spending growth? To begin answering that question, Parts II and III evaluate state spending trends that reveal two key findings:
- Since 1960, inflation-adjusted spending per biennium steadily grew from $8.1 billion to $61.9 billion (a 667 percent increase). Even after adjusting for population growth, the only noticeable dip in spending occurred during the 1980s recession.
- K-12 education and health and human services are currently consuming a larger portion of the budget—about 74 percent of general fund spending and 60 percent of total spending—which leaves a smaller portion of the budget for every other state spending priority.
How does Minnesota compare? Part IV compares Minnesota spending to other states, with a special focus on comparing how much states spend per person served by the major categories of state spending, with a further focus on similarly situated “peer states.” Here are the highlights.
- After Alaska, Minnesota spends more per low-income person on public welfare than any other state and outspends the average peer state by nearly $4,000.
- On K-12 education, Minnesota spending per pupil ranked fifteenth highest in the nation. Minnesota spends more than any Midwestern state, but less than most Northeastern states.
- Compared to peer states, Minnesota spends about $1,700 more on public research universities per student than Wisconsin, the next highest spending peer state.
- Minnesota spends dramatically less than most states on corrections. Nationally, Minnesota ranks 48th lowest on corrections spending per person in prison and under community supervision.
Two Spending Restraint Scenarios. This report estimates in Part V what state spending would be if the state had held spending to 1986, 1996 and 2004 levels while adjusting for inflation and population growth. Estimates are also provided for holding spending to growth in the state economy. State spending would be over $20.5 billion less today if spending had been held to inflation and population growth since 1986. If spending had just been held to state economic growth beginning in 1996, then spending would be $4.8 billion lower.
Conclusion. The above analysis leads to a number of important conclusions. First and foremost, there is ample room to reduce state spending. That is not to say reducing spending or even reducing the growth in spending would be easy, but spending restraint will be needed to help address future budget challenges.
Because Minnesota is such an outlier on public welfare spending, these programs are the natural place to look first to at least begin reducing the rate of growth. To start, the state should begin restructuring benefit and eligibility levels across public welfare programs to better match peer states. Higher education spending also warrants special review due to differences with peer states. To aid in these and other spending reviews, lawmakers will need much more detailed, accurate and regular assessments of public programs to know whether they deliver value and results.
Finally, state lawmakers have not consistently demonstrated a competence for spending restraint in good times or bad, and therefore the state might benefit greatly from new spending limits through statute or constitutional amendment.