Minnesota City Spending Below the National Average


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Among conservatives, Minnesota has a reputation as a high spending, big government state. North Star examined these claims earlier this year and found that state and local government revenues and spending—examined in the property context—were actually fairly typical of other states. Data from the quinquennial Census of Governments (CoG) from the U.S. Census Bureau that focuses exclusively on city finances reveal that city spending in Minnesota is actually below the national city average.

The most recent CoG is based on expenditure information from 2012. An initial examination of this data would appear to indicate that Minnesota city direct general expenditures* per capita are 25.2 percent below that of all U.S. cities. However, this finding is not based on a true apples-to-apples comparison, insofar as cities in some other states provide services that Minnesota cities do not. For example, public schools are operated by city governments in a handful of states. All other things being equal, cities in these states should have higher per capita spending than Minnesota cities, since educational services are provided by a different level of government (i.e., school districts) in Minnesota. States in which cities provide services that cities in other states do not have the effect of pulling up the national city average and rendering comparisons problematic.

A more meaningful comparison of per capita spending levels between cities in Minnesota and other states is possible if we focus on a core set of services that are provided at the city level across the nation. This core set excludes services that are not provided at the city level (or provided at a lower level) in Minnesota. Services that are excluded from this core set and the reason for their exclusion are listed in the following table.

cog-table

In the following analysis, the remaining direct general government expenditures—minus the excluded categories listed above—are referred to as “adjusted city expenditures.” Based on 2012 CoG data, Minnesota adjusted city expenditures per capita were $1,165, 7.6 percent less than the national adjusted city expenditures per capita of $1,261.

cog

Based on data from preceding CoG reports, Minnesota adjusted city expenditures per capita were 5.5 percent below the national city per capita spending level in 2007 and 0.6 percent below in 2002. In inflation-adjusted dollars,† Minnesota adjusted city expenditures per capita declined by 17.1 percent from 2002 to 2012—a finding that is roughly consistent with information from the 2012 Minnesota City Finances Report from the Office of the State Auditor.

The decline in Minnesota per capita city spending in real dollars and relative to the national city average over this period is possibly the result of declining state aid to cities. An April 2016 North Star article demonstrated a sharp decline in state aid to Minnesota cities since 2002. Insofar as state aid finances a significant portion of Minnesota city spending, the decline in aid is a very plausible explanation for the decline in Minnesota city expenditures, both in absolute terms and relative to cities in other states.

The impact of 2014 city aid increases upon Minnesota city spending relative to cities in other states will not be known until the 2017 CoG is released. However, based on the most current CoG data available, per capita city spending in Minnesota is significantly below the national average.

 

*“Direct general expenditures” excludes spending on utilities, such as water supply, electricity, gas, and transit.  In most states, these utilities are provided either privately or by another level of government other than cities.

 †The inflation adjustment here is based on the implicit price deflator for state and local government purchases. The use of this implicit price deflator was the subject of a February 2016 North Star article.