Total Minnesota city revenues—adjusted for inflation—have declined by six percent from 2006 to 2015, based on data from the recently released Minnesota City Finances report from the Office of the State Auditor (OSA), as summarized in the preceding North Star article. The decline in city revenue exceeds twelve percent if we further adjust for growth in city population. An examination of city spending data from the OSA reveals a similar drop in total city expenditures over the last decade.
The OSA city finance report data used in the following analysis were described in the preceding North Star article. As the inflation-adjusted data in the 2015 OSA city finance report are presented in constant 2006 dollars, amounts in this article will also be presented in 2006 dollars.
From 2006 to 2011, the total expenditures of all Minnesota cities fell sharply, before leveling off over the next two years. By 2013, total city spending was $917 million (17.1 percent) less than it was in 2006. Increases in state aid in 2014 and 2015 contributed to a $411 million (9.3 percent) increase in city spending from 2013 to 2015. In aggregate, total city expenditures of all Minnesota cities declined by $507 million (9.5 percent) from 2006 to 2015—somewhat greater than the 6.0 percent decline in city revenues over the same period.
Most of the spending reductions from 2006 to 2013—as well as most of the increases from 2013 to 2015—occurred within the category of “capital expenditures,” which includes spending for the purchase, construction, or permanent improvements of buildings, equipment, machinery, and land. It is predictable that cities would respond to large state aid cuts (discussed in part 1 of this series) through cuts in capital spending rather than through cuts in current operating expenditures, since cuts in capital spending have less of an immediate impact on a city’s quality of life or the public’s perception of the level of city services. Ultimately, however, reductions in capital outlays will contribute to deterioration in city infrastructure, resulting in the need for increased capital investments in subsequent years.
During the entire span from 2006 to 2015, total city capital expenditures declined by $422 million (26.3 percent), while current operating expenditures stayed relatively flat, increasing by $12 million (0.4 percent). The remainder of city expenditures is comprised of debt service spending, which consists of city payments for principal and interest on debt issued by cities. Minnesota city debt service expenditures declined by $96 million (11.8 percent) from 2006 to 2015.
The need for city services and the demands on city infrastructure typically increase as population increases. Using city population data from the OSA’s annual city finance reports, it is possible to determine the change in city spending per capita over time. The population of Minnesota cities increased by 7.0 percent from 2006 to 2015; as a result, the decline in city spending on a per capita basis is greater than the spending decline measured without taking into account growth in city population.
From 2006 to 2015, total city expenditures fell by $195 per capita (15.4 percent). Most of the decline occurred among capital expenditures, which fell by $118 per capita (31.1 percent), while current operating expenditures fell by $43 per capita (6.2 percent) and debt service expenditures fell by $34 per capita (17.6 percent).
As was the case with total Minnesota city revenues, total city expenditures have declined significantly over the last decade. This decline is similar to the decline in county revenues and expenditures, as documented in two recent North Star articles. Minnesota cities and counties now have to provide services to more people with fewer real resources while spending significantly less than they did a decade ago.