State Spending Outstrips Inflation, Population Growth and Economic Growth

by James A. Bacon

State spending has increased rapidly in Virginia over the past decade — by 2.6 % annually — even when adjusted for inflation and a growing population, according to a recently published Joint Legislative Audit and Review Commission report, “State Spending: 2020 Update.” In Fiscal Year 2020, the budget reached $62.6 billion.

Perhaps the most worrisome finding of the report is that spending grew faster than the state’s economy, which grew an anemic 1.1% annually on average after adjusting for inflation. The state’s rate of economic growth was barely half the rate of the 2.1% U.S. average. In other words, the state accounts for an ever increasing share of the state economy.

The spending increases were concentrated in a few areas: Medicaid, K-12 education, and transportation construction and maintenance. Virginia’s budget encompasses 148 agencies and 199 programs. The top 10 agencies account for two-thirds of all spending.

Bacon’s bottom line: For the most part, Republican Governor Bob McDonnell held the line on spending, although he succumbed to bipartisan pressure toward the end of his term to increase transportation taxes. As can be seen in the graph atop this post, Governor Terry McAuliffe loosened the spending purse strings. But spending didn’t reach escape velocity until the Northam administration.

The JLARC report does not show the impact of Governor Ralph Northam’s initiatives that are off the state books. The Governor has established the goal of a zero-carbon electric grid in Virginia by 2045, a program which the State Corporation Commission estimates will require $43.5 billion in additional capital investments over just the next 15 years at an average annual cost of $800 for a typical Virginia household. (See Steve Haner’s new post with the gory details.)

Northam campaigned as a moderate but his election marked an inflection point in state spending. Now that Democrats control the General Assembly as well as all three statewide offices, the new spending trajectory may represent the new normal.

(Hat tip: Jim Weigand)

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15 responses to “State Spending Outstrips Inflation, Population Growth and Economic Growth

  1. Wow! They hit the trifecta!

  2. Here’s the kicker for Northam and the other members of the Democratic majority in Virginia – the SALT caps. Does anybody really believe that Slo’ Mo’ Joe and the national Democrats won’t reward their wealthy urban supporters by rolling back Trump’s SALT caps? Nancy, et al will lower the taxes on the wealthy by eliminating the SALT caps and Slo’ Mo’ Joe will sign it with his purple crayon (he’s not allowed to possess sharp objects like pens).

    Meanwhile, Northam and the opaque governance artist Democrats in Virginia will have raised taxes without using state taxes to do so. The electricity rate based wealth transfers, the Dominion overcharge wealth transfer, the hospital surcharge to pay for Medicaid expansion – all taxes without being taxes. Had these monies been raised by a transparent increase in the state income tax they would be deductible when (not if) Biden, et al roll back Trump’s SALT tax cap. Of course, if these monies had been raised by transparent tax increases then Northam would have needed to broadly admit that he was raising taxes.

    We all pay an increasing personal cost for living in the state with the most dishonest state government.

  3. Feeding the on-going debate between me and Dick over whether non-general fund spending “counts” when tracking growth. I think it does. JLARC certainly includes it.

    • does it matter than the budget increased because of more Federal money for the Medicaid Expansion?

    • Certainly, nongeneral fund spending should be tracked. But, the spending that matters to most Virginians, i.e. that supported by the general taxes they pay (income and sales), is general fund spending. Adjusted for population growth and inflation growth, that spending increased 2 percent per year, on average. The biggest jump in nongeneral fund spending came in Medicaid, fueled by increases in medical and drug costs and the expansion of the population eligible for the program. Notice that three of the largest categories were in higher education. Most of that increase is in nongeneral fund spending, primarily tuition and fees. (That should not be a surprise and has been a topic of intense conversation on this blog.)

      I continue to argue that general and nongeneral fund spending and revenues should not be lumped together, but analyzed separately. JLARC does this; the budget bill does it this way.

      • The thing about Medicaid is that Virginians are ALREADY paying taxes to fund it and we were not getting back what we paid into it as long as we rejected the Medicaid Expansion.

        NOW – that we ARE finally getting our own money back – “conservatives’ are arguing that our budget went UP.

        And ….. geeze.. one of those who is making that argument – also talks about how great it is that the Feds spend OTHERS tax money on Newport News shipbuidling!

        Oh the ironies ABOUND!

        😉

        • All fifty states own the fleet. We just get to build it here.

          • true. But we get the benefit of all other states taxes….. at the same time some argue that we should not even get back our own share of taxes that fund Medicaid because it will make our “spending” look higher?

            I suppose because Newport News is not shown as Virginia “spending” it’s good, eh?

            😉

  4. “Perhaps the most worrisome finding of the report is that spending grew faster than the state’s economy, which grew an anemic 1.1% annually on average after adjusting for inflation. The state’s rate of economic growth was barely half the rate of the 2.1% U.S. average. In other words, the state accounts for an ever increasing share of the state economy.”

    The state is economically failing while Northam and the Democrats take more and more money to spend on their wishlist of random ideas. Meanwhile, they continue their dishonest practice of hidden spending through intermediaries like letting Dominion rob us blind and then demanding that some of Dominion’s ill gotten gains be used by Dominion to pay off the electrical bills of those who did not pay.

    This is the Illinois plan.

    • ehhh…maybe not so much:

      • Please post that same map again in five years.

        • I predict that Virginia will still be a AAA state in five years. No governor or legislature wants to be the one to lose that rating.

          • I agree. Virginia continues to be a fairly fiscally conservative state though it’s true the Dems now have taken over the GA. Northam has a fiscal guy name Lane that seeems to be a responsible budget guy.

            The big “hit” that is really somewhat disengenuous is the spending on the Medicaid Expansion. What does spending and taxation look like if we acknowledge that spending is already funded without increasing taxes?

            From what I understand, Medicaid actually saved money in the budget but the boo birds say that in future years it will “explode”.

            always the budget boogeyman… what would politics be without it? ;-0

  5. Hmmmm…if only there was another half of the budget equation we could look at…

  6. Dick, Senator Janet Howell, in arguing for Medicaid expansion, would say expansion would allow for major cuts in the amounts of state spending for health care for the indigent. A reasonable argument, but did it come true? I have no idea.

    She also argued that the rate of growth in health care premiums paid by employers and individuals would also slow. That one is pretty hard to measure, I think.

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