(Page 2 of 3)
The top-line figure for state funding is total revenue. It encompasses every dollar available to state governments: tax revenue, money from the federal government, income from trust funds, earnings from investments, even state employee contributions to pension systems. In 2002 total combined state revenue was $1.097 trillion (see Figure 1). In 2007 this figure had risen to almost $2 trillion. That’s an 81 percent increase, at a time when prices plus population increased 19 percent. So total revenue increased more than four times faster than inflation and population growth.
Here’s a hypothetical that puts this trend in a more understandable context. In 2002 you and your friend (call him “Mr. State Government”) come out of the recession with jobs paying $50,000 a year. During the next five years you receive cost-of-living adjustments from your employer, so by 2007 your salary is $59,500. Your pal, on the other hand, has jacked his annual earnings up to $90,500.
But the 81 percent increase over five years only tells part of the story. Since 2002 total revenue collections have been well above the levels needed to maintain services each year. This windfall has a cumulative impact. In just five years, taking inflation into account, the states collected $2.2 trillion more than they would have needed to maintain revenues at 2002 levels.
Let’s put this another way. After 2007 we were clearly experiencing an economic downturn. If the states had merely maintained their existing programs between economic downturns, they would have been able to deliver a $2 trillion tax cut at the end of 2007. Imagine the impact that might have had.
General Fund Revenue
Some will argue that total revenue isn’t the appropriate focus. Since a portion of that money is out of the direct control of elected officials, the argument goes, it doesn’t truly reflect the choices they have faced or the decisions they have made.
The general fund better reflects the day-to-day activities of state government. It includes all the programs we traditionally associate with states: education, Medicaid, road building, departments of motor vehicles, etc. Money in the general fund comes mainly from tax revenue and federal funds.
In 2002 states’ general fund collections were $1.062 trillion (see Figure 2). By 2007 general fund revenue had risen to almost $1.5 trillion, an increase of 37 percent, or almost twice the national growth rate of inflation plus population. Of the 50 states, only one (Wisconsin) saw its general fund expand at a rate below the state’s population growth plus inflation. Alaska and Wyoming led the charge with 91 percent and 74 percent, respectively, compared to rates of population growth/inflation of 20 percent and 18 percent. Even in Mark Sanford’s South Carolina, the general fund grew by 45 percent, compared to a 21 percent rate of population growth plus inflation.
About 30 percent of state general fund money comes from the federal government. These funds support federal initiatives in education, road building, and Medicaid, among other uses. Given the well-publicized increase in federal spending during George W. Bush’s administration, it is worth examining whether states shared in the windfall.
Interestingly, this is one area where federal spending rose relatively modestly, at least in comparison with other priorities. In 2002 states received $335 billion in revenue from the federal government (see Figure 3). In 2007 they received $430 billion, a 28 percent increase. It is noteworthy that in examining government financing, a 28 percent increase over five years now seems modest. It is worth remembering that this increase is still 50 percent faster than the rate of inflation and population growth.