The preceding article in this series demonstrated that in terms of state and local government spending per $1,000 of personal income, Minnesota is slightly below the national average based on fiscal year (FY) 2013 data, ranking 31st among states. An examination of state and local government revenues shows a similar—though not identical—pattern.
There are several reasons why government spending within a state in a given fiscal year does not equal government revenue. Some of these reasons are listed in an addendum at the end of this article. Because of the potential mismatch between revenues and expenditures over a twelve month period, state rankings based on state and local government revenue are not necessarily identical to rankings based on spending, hence the need for a separate analysis that focuses on revenues. For reasons explained in part one of this series, the analysis below will examine state and local government revenues per $1,000 of personal income. The data sources are also the same as those used in the analysis presented in part one.
Minnesota’s total state and local government revenue per $1,000 of personal income in FY 2013 (the most current year for which state and local government finance data for all fifty states from the U.S. Census Bureau is available) was $254 (i.e., total state and local government revenue equaled 25.4% of statewide personal income)—4.1 percent greater than the national average of $244.
While Minnesota’s total spending per $1,000 of personal income was modestly higher than the national average, Minnesota’s rank relative to other states was an unremarkable 21st. In other words, 19 states and the District of Columbia had higher spending than Minnesota, while 30 states had lower spending. Relative to neighboring states, Minnesota had higher spending than Iowa and South Dakota and lower spending than Wisconsin and North Dakota.
An alternative way to rank state and local government revenues is to focus on general revenues instead of total revenues. General revenue equals total revenue minus insurance trust, utility, and liquor store revenues. Most of the revenues excluded from general revenue are not available to fund general public services; this is particularly true of insurance trust revenue—the largest of the three revenue categories excluded from general revenue. In addition, insurance trust revenue can vary dramatically over time, depending upon the performance of the stock market; as a result, insurance trust revenues within a particular year often are not a reliable indicator of average insurance trust revenues over time.
Some states’ ranks and positions relative to the national average in terms of general revenue per $1,000 of personal income are significantly different from their ranks and positions in terms of total revenue. For example, California went from significantly above the national average in terms of total revenue to only slightly above in terms of general revenue and its rank relative to other states fell from 10th to 26th. However, Minnesota’s position relative to other states is nearly the same under general revenue as it was under total revenue. Minnesota’s FY 2013 general revenue per $1,000 of personal income was $201—4.2 percent above the national average of $192. Minnesota’s rank relative to other states in terms of general revenue was 22nd—one spot lower than its rank in terms of total revenue.
While Minnesota was modestly below the national average in terms total spending per $1,000 of personal income, it was modestly above average in terms of total and general revenues.* In each case, Minnesota fell within the middle range of states (i.e., between 21st and 31st). Based on these findings, Minnesota is not a “big government” state.
This conclusion is based on data for FY 2013—the last year before the implementation of tax and expenditure increases authorized during the 2013 legislative session. The final installment of this series will estimate how the changes enacted in 2013 will affect Minnesota’s position relative to other states and to the national average in terms of state and local government revenues.
*The information reported by the Census Bureau does not enable us to ascertain why FY 2013 Minnesota revenues are slightly above the national average, while expenditures are slightly below average, and why Minnesota’s revenue rank is ten places higher than its expenditure rank. One possible explanation for this outcome (in part, if not in total) is that a portion of the state revenues generated within FY 2013 were used to pay back school funding shifts from previous years and thus were not available to pay for spending within FY 2013, hence contributing to the mismatch between revenues and expenditures.
There are several reasons why state and local government revenues within a state as reported by the U.S. Census Bureau do not equal expenditures. Some of these reasons are listed below.