Welfare is the fastest-growing expenditure in the state budget

At long last the legislative session is over. Compared to 2023, things were much quieter in St. Paul. That is if you don’t count the chaos of the final legislative day. Not much was spent, thankfully. And some of the bad proposals did not go anywhere, as John Phelan has documented.

Still, there are many reasons to be concerned about the direction of the state budget. After last year, Minnesota will spend $70.5 billion this biennium (up from $52 billion in the previous biennium). Spending will reach $66.3 billion in the 2026-27 biennium. This is mainly thanks to Health and Human Services (welfare), which is now the fastest-growing category in the state budget.

Of course, after the 2023 session, anything done this year would likely look mild in comparison. Regardless of the low bar, the caution that lawmakers exercised on spending (especially on welfare) this session has saved the budget further trouble in the next few years.

To see why, here’s a look at how Minnesota’s welfare spending has grown over the years and where it is expected to go in the immediate future. As American Experiment’s most recent report shows, welfare spending in Minnesota has

grown in absolute terms and when adjusted for the population in poverty. Additionally, growth in Minnesota’s welfare spending has generally exceeded growth in spending on other programs.

Total welfare spending

According to the US Census Bureau,

in the 19 years between 2000 and 2019, spending on public welfare grew 92 percent in inflation-adjusted terms — surpassing all other spending categories. In 2021, spending on public welfare was more than double what it was in 2000.

Figure 1: Cumulative Growth in State and Local Direct General Expenditure by Category for Minnesota, FY 2000-FY2021 (2000=0)

Source: U.S. Census Bureau Annual Survey of State and Local Government Finances

Welfare spending as a share of the budget

Welfare is also the fastest-growing spending category as a share of the budget. For instance,

while in FY 2000 spending on public welfare made up 19.2 percent of total direct general expenditure, in 2019, its share was 27.2 percent — a growth rate of 42 percent. By contrast, six of the eight major general fund spending categories saw their share of spending shrink in the same period. Apart from welfare, only spending on highways grew as a share of direct general expenditure, but by only 4 percent, going from 7.7 percent in 2000 to 8 percent in 2019.

Figure 2: State and Local Spending by Program as a Share of Total Direct General Expenditure, Minnesota (FY 2000 vs FY 2019)

Source: U.S. Census Bureau

Certainly, spending has grown both for Minnesota and the rest of the nation. However, Minnesota has surpassed the nation in the whole period between 2000 and 2021, as Figure 3 shows.

Figure 3: State and Local Spending on Public Welfare as a Share of Total Direct General Expenditure (FY 2000, FY 2019, FY 2021)

Source: U.S. Census Bureau

State data from MMB shows a similar trend. In the 19-year period between 2000 and 2019, HHS spending as a share of general funds grew from 23 percent to 29 percent — a growth rate of 26 percent. As a share of general funds, spending only grew for two programs and stayed the same or shrank for all the other spending categories. HHS’
share of spending was even higher in FY 2023 at 30 percent.

Table 1: Share of General Fund Spending by Category, FY 2000, FY 2019, and FY 2023

Source: Minnesota Management and Budget

Welfare spending per person in poverty

The same trend is visible when spending on welfare is controlled for the number of people in poverty. In 2005, for example

Minnesota spent an equivalent of $26,130 on public welfare per person. This was the
fourth highest spending level among the 50 states. Between 2005 and 2019, Minnesota’s state and local spending on public welfare per person in poverty grew 32 percent, from $26,130 to $34,379.

Nationally, spending also grew per person in poverty, but Minnesota maintained a lead over the nation during the whole period.

Figure 4: Spending on public welfare per person in poverty, 2000-2021

Source: U.S. Census Bureau

Projected future spending

Partly due to what happened in the 2023 legislative session, spending is projected to grow even further and take a higher share of the general fund budget. In the period between 2018 and 2023, for example, “HHS has made up 29 percent of general funds. In the current biennium (2024-25), that share is 30 percent.

In the 2026-27 biennium, however, spending is expected to reach 35 percent of general funds.

Putting that into perspective, in the next four fiscal years between 2024 and 2027, the share of general funds dedicated to HHS will grow by over 20 percent compared to where it was at the end of FY 2023. During this period, $42 of every $100 in new general fund spending will go towards HHS — making it the primary driver of growth within the state budget.

Looking at these trends, it’s a surprise some lawmakers were proposing new programs at the beginning of this session. Thankfully, those did not go anywhere.