If Minnesota closed its looming budget deficit entirely with spending cuts, real terms, per capita spending would still be higher in 2029 than in any year before 2024
Not burying the lede
Last week I wrote that, adjusted for inflation, government spending per person in Minnesota has risen 23% since 2019. From this, I concluded that “There is ample capacity for the burden of closing the [forecast $5.1 billion] budget deficit to fall on the spending side alone.” There should be no more tax hikes.
I expect that a common response would be something along the lines of how this would cripple the state government, sending us back to some Dickensian dark age. Is this true?
Last week I showed per capita state government spending adjusted for inflation going back to 1990. Using the same data — from MMB’s General Fund Spending by Major Area (Since 1990) to show “Total Spending” from 1990 to 2023 and from the General Fund Analysis — Summary to show “Total Expenditures & Transfers” from 2024 to 2029 (which a look at the numbers on the two documents for 2024 to 2029 will show are the same series) and which we call “General Fund Spending” — and adjusting for inflation using the Consumer Price Index (CPI) — which MMB uses for budgeting purposes — and forecasts of this from the November Budget & Economic Forecast, we can extend the series to 2029, shown on Figure 1. As before, for the years 2024 to 2029, we start with the 2023 population estimate and increase that by 0.6% annually, the average growth rate over the previous decade. Using numbers on “Historical Expenditures” from MMB, we can push these series right back to 1960.
Figure 3 shows that, in per capita, inflation adjusted terms, Minnesota’s state government spending is forecast to be 7.8% higher in 2029 than it was in 2020.
Figure 1: Minnesota General Fund Spending per capita
Now, let us focus on the period from 2024 onwards. Figure 2 shows the inflation adjusted forecast for General Fund Spending (from Figure 1 but not per capita) and the figures for “Subtotal Current Resources” taken from MMB’s General Fund Analysis — Summary which we will call “Revenues” adjusted for inflation as above. We see cumulative real terms budget deficits for the Minnesota state government of $9.7 billion over the years 2025 to 2029 inclusive.
Figure 2: Minnesota General Fund Spending and Revenues, billions, 2024$
Figure 2 also gives us our real terms forecast for General Fund Spending if we want to close the looming budget deficit entirely with spending cuts: It is, quite simply, the forecast Revenues.
Now, let us reintroduce the population numbers to see what that would mean for real terms state government spending in per capita terms. Figure 3 shows our inflation adjusted figure of forecast Revenues from Figure 2 — which, by definition, would close the deficit if we matched spending to it — divided by the population along with the current forecast from Figure 1. We see that, even if Minnesota’s state government were to close the looming budget deficit entirely through reduced spending, it would still be spending more in inflation adjusted, per capita terms in 2029 than in any year prior to 2024. Hardly that Dickensian dark age.
Figure 3: Minnesota General Fund Spending per capita, 2024$
As I concluded last week:
Over the last four decades, the explosion in per-person government spending seen in Minnesota in the last couple of years — even adjusted for inflation — is unprecedented. There is ample capacity for the burden of closing the budget deficit to fall on the spending side alone.
I close with an apology for the cumbersome title. One doesn’t want to “bury the lede.”