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Reality: Sound sreason exist for state and local government spending increases
By Jim Regimbal
Earlier this winter, an editorial writer for a major daily newspaper used a Joint Legislative Audit and Review Commission report as “evidence” that state and local government spending is excessive. Using the 80 percent growth in state spending from fiscal year 1996 through fiscal year 2005 reported by JLARC, the writer wanted to “shatter myths regarding state spending.”
In fact, the December 2005 JLARC report provided valid reasons for the growth in state spending that has occurred over the last 10 years. JLARC reported that after accounting for inflation and population increases, adjusted state budget growth from fiscal years 1996-2005 was 30 percent, or 3 percent per year. JLARC explained that this 3 percent average yearly adjusted growth rate was caused by many factors, including Virginia becoming a more prosperous state, new state initiatives, federal mandates and increases in specific populations served. JLARC also explained that only four agencies – the Department of Education, the Department of Medical Assistance Services, the Virginia Department of Transportation and the Department of Social Services, plus the car tax relief program, accounted for 60 percent of the increased appropriations over the last 10 years.
1990-2004 Average Growth Rates for Local Revenues and Expenditures
In fact, from FY96 through FY05 Virginia government spending grew at about the same rate as personal income growth. A wealthier state demands better services and requires better pay to attract qualified teachers and professors, health care practitioners, VDOT engineers, etc. Teacher pay constitutes about 70 percent of the cost of public education – the largest state and local government program. In addition, state government instituted several new spending programs since 1996, including a car tax relief program, and parole abolition requiring more state prisons.
Like the nation as a whole, Virginia has had to cope with rising medical cost inflation far above overall inflation. The greatest state spending increases have occurred in its second largest program -- Medicaid. Seventy percent of the state’s Medicaid program is spent on elderly and disabled long-term care. The fastest growing segment of Virginia’s population is over 85. Compared to other states, Virginia has kept its Medicaid costs low. In FY 2004, Virginia spent $527 per capita on Medicaid, versus the national average of $981, ranking 48th in state spending. Rising health care costs have also affected benefit costs for the state and local workforce.
JLARC also cited new federal mandates for spending over this time period, including Clean Water Act programs, new social service programs for child support enforcement, higher staffing requirements at state mental institutions, motor voter laws, and special education programs and the federal No Child Left Behind Act.
The reality is that new state initiatives, federal mandates, and medical cost inflation have squeezed other state programs, including education funding. Even though the federal Bureau of Economic Analysis reports that Virginia ranked seventh highest in 2004 per capita personal income, according to JLARC Virginia only compensates its localities for teacher salaries at about 85 percent of the statewide average and about 80 percent of the national average. In addition, the state Board of Education has adopted standards that have yet to be funded. To compensate for state education funding deficiencies, Virginia’s localities have to spend $2.6 billion each year beyond their required local match for the state Standards of Quality to maintain a quality public education system. Even with this local effort, it is hard to argue that Virginia and its localities overspend on education, with average teacher salaries in Virginia below the national average.
Generally, local government spending has mirrored state spending. From FY95 to FY04, growth in local government spending increased 75 percent. Over the longer time period 1990-2004, local spending has been even lower, about 6 percent per year. The areas with the highest local spending growth rates -- health and welfare, and law enforcement -- mirrored the trends seen at the state level.
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About the author: Jim Regimbal is a partner in the consulting firm Fiscal Analytics, which performs research on behalf of VML. He is a former Senate Finance Committee staff member. |
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Finally, Virginia’s tax levels compared to other states and its triple AAA bond ratings confirm that its spending is under control. According to 2004 U.S. Census Bureau state rankings, Virginia ranked 31st in per capita taxes, and an even lower 44th in taxes as a percentage of personal income. Virginia is a low tax state with commensurately low spending levels compared to other states.
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