Bacon's Rebellion

State Spending: Up, Up and Away

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by

James A. Bacon
in

No matter how you slice it, state spending has been growing steadily and aggressively over the past 10 years. The 2001-2002 recession briefly dampened the upward climb, but spending has more than made up for the momentarily lull since then.

Over the past 10 years, the total operating budget for the state rose 80 percent, according to the Legislative Audit and Review Commission’s annual report on state spending. Adjusting for inflation, spending still increased 45 percent. Adjusting again for population growth, it still increased 30 percent.

Read the JLARC report here, or read the “cliff notes” version in Barton Hinkle’s Richmond Times-Dispatch column here.

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7 responses to “State Spending: Up, Up and Away”

  1. Ray Hyde Avatar
    Ray Hyde

    In the last ten years the gross state product has risen 82%. Inflation and population growth are only a part of the picture. More population and more business means more complexity, more stakeholders, more special interests and more work.

  2. Rtwng Extrmst Avatar
    Rtwng Extrmst

    More population also means more taxpayers, more economic activity, and more assessments. All of these mean more tax revenue without increasing tax rates. Shouldn’t therefore revenue growth at that rate be more than enough without considering increases in tax rates?

  3. Jim Bacon Avatar
    Jim Bacon

    Rtwng extrmst, yes, a growing population does mean more taxpayers and more taxes. On the other side, it also means in increase in government services. That’s why, in my mind, it’s legitimate for the size of government spending to increase at the rate of inflation + population growth.

    Any growth over that is suspect, although it’s important not to oversimplify. If there’s a huge bulge in the school age population, it’s not unreasonable to see K-12 education expenses increase at a rate consistent with enrollments, which are increasing faster than the general population. Likewise, if there’s an increasing number of old people in society, it’s not unreasonable to expect rapid growth in Medicaid spending. That’s why I’m wary of mechanistic remedies like TABOR, which would limit the growth of state revenues to inflation + population.

    On the other hand, we need to find some mechanism to curtail the growth of spending. There are many things that government could be doing, like the private sector, to increase the productivity of state administration, or to restructure programs to work more effectively without just pouring more money into them.

  4. Ray Hyde Avatar
    Ray Hyde

    Rtwing: my point exactly. If government spending is increasing the at near the same rate as everybody else’s spending (Gross State Product) then we can hardly claim they are being out of bounds. I don’t believe spending is out of line at all, although I might have a problem with priorities.

    Certainly if my own personal earnings/spending wasn’t increasing faster than my own personal population growth plus interest, then I would feel like I was at most trading water, and more likely falling behind.

    But if GSP is growing, and state spending is increasing at the same rate, then you are right, there shouldn’t be any need for rate increases.

    But that would only be true if state revenues reflected state citizens activities fairly. As it is, services are not subject to sales tax, and services are one of the fastest growing areas. The gas tax is based on gallons, not dollars, so it is not expanding as fast as transportation costs.

    As a result of the narrow and stagnant basis for taxation tax rate increases are necessary to keep the same relative level of spending for state government as everybody else.

    Or, we could broaden the tax base so it more fairly reflects citizen activities. I suspect that those affected by new taxes would fail to discriminate between that situation and a tax increase.

  5. Steve Haner Avatar
    Steve Haner

    The next report somebody needs to develop (JLARC. Cooper Center, The James Bacon Institute) would combine state and local spending. Even this useful JLARC report is still just one side of the coin.

    The data is already gathered by the Auditor of Public Accounts on state and local tax revenue and spending.

  6. Steve Haner Avatar
    Steve Haner

    And to ride my favorite hobby horse at least one turn, your comment about rate increases applies to taxes on sales, income, real property, etc. but not perhaps to fixed fees tied to specific costs such as college tuitions, dorm rents, hunting licenses, hospital charges. Just additional population or paying them using them doesn’t always cover the rising costs. Inflation matters there, too.

    There was another example of that problem that I had on the tip of my fingers…what what that one? It’ll come to me.

  7. Ray Hyde Avatar
    Ray Hyde

    Good point, Steve. If we pay less local car tax and more state tax so localities can be reimbursed for the car tax they didn’t get, then what’s the difference?

    I thought about local taxes, but I didn’t want to get started on the total system argument.

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