Minnesota has a reputation among conservatives as a high tax, big government state. However, based on some of the better metrics, total state and local government expenditures in Minnesota are about equal to the national average, with Minnesota ensconced in the middle of the fifty states in terms of expenditure rankings.
Minnesota generally ranks fairly high among states in terms of taxes per capita, but this is not a reliable measure of the size of government. High per capita income states such as Minnesota typically receive fewer federal dollars than do low per capita income states. As a result, high per capita income states have to rely more on taxes and other own-source revenues, even though they are not necessarily spending more per capita. In addition, high per capita income states typically have higher labor costs and thus must pay more per worker. A Minnesota Department of Revenue analysis found that variations in per capita income explain over half of the variation in per capita taxes among states.
Taxes provide only 54 percent of total state and local government general revenue nationwide (and 58 percent in Minnesota); thus, taxes are at best only a partial barometer of the overall size of government. A better way to gauge the relative size of government in the fifty states would be to examine total government revenue or spending rather than just taxes. Furthermore, in order to control for the higher labor costs in high per capita income states, it makes more sense to examine revenues or expenditures relative to statewide personal income rather than on a per capita basis. In addition, an examination of spending in comparison to personal income provides a better gauge of the size of government in each state relative to the size of that state’s economy.
The chart below shows state and local government spending per $1,000 of personal income in each of the fifty states and the District of Columbia using fiscal year (FY) 2013 expenditure data from the U.S. Census Bureau and personal income amounts from the U.S. Bureau of Economic Analysis.* FY 2013 is the most recent year for which Census Bureau expenditure data for all fifty states are available.
State and local government spending per $1,000 of personal income in Minnesota is $222. (In other words, total state and local expenditures in Minnesota equals 22.2 percent of statewide personal income.) This is 2.7 percent below the U.S. average of $228. Minnesota ranks 31st among states in terms of state and local spending per $1,000 of personal income. In other words, 29 states and the District of Columbia have higher spending per $1,000 of personal income, while 20 states have lower spending. Relative to its four neighboring states, Minnesota has lower spending than Iowa and Wisconsin and higher spending than North and South Dakota.
Even if we remove the outlier states of Alaska (atypical in terms of geography, population density, and heavy dependence on energy-related tax revenues) and the District of Columbia (not a state), Minnesota’s state and local government spending per $1,000 of personal income remains modestly (2.3 percent) below national average. (Total state and local expenditures in Alaska and the District of Columbia are not large enough to cause meaningful change in the national average.)
In conclusion, total Minnesota state and local government expenditures relative to the state’s personal income—and relative to the size of the state’s economy—is below the national average and below that of most other states. The second part of this series will examine total state and local government revenues relative to personal income.
*The fiscal year of most states, including Minnesota, begins on July 1 of the preceding calendar year. (For example, FY 2013 began on July 1, 2012 and concluded on June 30, 2013). In order to more closely coincide with the FY 2013 expenditure data, the personal income data used in this analysis is from the last two quarters of calendar year 2012 and the first two quarters of calendar year 2013.