Minnesota revenue history 1991 – 2010

As budget discussions heat up, the level of revenue needed to fund state government will surely be part of the conversation. The dark blue bars on Chart A show the total per person state-only generated revenue (all taxes and fees, in and outside of the general fund) from 1991 through 2010, while the light blue line shows the total per person revenue for all state and local governments, including school districts. Both series are adjusted by inflation for state and local governments and are sourced to Minnesota’s Price of Government reports.

Chart A: Minnesota Revenue History

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The chart shows that the state generated less revenue in 1991 and 1992 than it did in 2010, but during the years in between, the state generated more revenue. From 1991 to 1998 the state increased its revenue by $893 per person, a 26 percent increase. From 1998 to 2006, the state total revenue per person remained relatively flat, with a dip in 1999 and a small U-shaped reduction and growth in revenue between 2000 and 2006. Since 2006, state revenue per person has dropped $674 or 15 percent.

Of course, these are just state collected revenues, and there is a connection between state and local governments. The light blue line that shows per person revenues for all state and local governments in Minnesota has a similar but not identical pattern. Like state-only revenue, there was an increase in state and local revenue from 1991 to 1998 and a dip in 1999, followed by three years of little change. Unlike the state, which saw little change in 2003, the total for state and local revenue dropped by $343 per person that same year, meaning local governments saw a revenue reduction in 2003. The total per person revenue for state and local governments then increased until 2006 before dropping to its lowest point since 1992 in 2010. Unlike the state-only revenue, which peaked in 2006, state and local revenue peaked in 1998 at $1,022 more than what this total was in 2010. 

Chart B shows the “Price of Government”, a measurement of the total cost of all state and local revenues (not including federal money) collected as a percent of total statewide personal income. The measurement attempts to answer the question of how much Minnesotans pay to state and local governments in total. From 1991 to 1994, the price of government increased, meaning the growth in Minnesota governments reduced personal income retained by Minnesotans. From 1995 through 1998, however, state and local revenues, as shown in Chart A, continued to grow, as did Minnesotans personal income, so the percentage of income going to Minnesota governments did not increase.

Chart B: Minnesota’s Price of Government

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A big change occurred in 1999 when Minnesotans stopped paying between 17 percent and 18 percent of their income to Minnesota governments and started paying between 15 percent and 16 percent. In 2009, Minnesotans paid the least amount of their personal income to state and local government than at any other time in the last 20 years. Interestingly, the increase in the percentage of income going to the Minnesota governments from 2009 to 2010 was not caused by government growth, but a 7 percent decline in Minnesota’s total personal income.

Is there uniformity in city budgeting methods when LGA cuts loom?

As the legislature debated H.F. 130 and the impact it would have on local governments, much discussion centered around whether or not cities and counties “planned for”, “expected” or “should have planned for” the reductions from certified levels in terms of their 2011 and 2012 LGA payments. As the following survey of four cities shows, every city did something slightly different and it is impossible to generalize how cities actually prepared their 2011 budgets.  

East Grand Forks: While the city used its actual paid 2010 LGA while budgeting, city officials note that it did not come without a cost. In order to make up for the expected revenue loss, the city raised its levy by 4.4 percent and increased other fees.

Staples: For its 2011 budget, the City of Staples utilized the LGA amount certified to them by the Department of Revenue. The Staples city administrator notes that to budget off of anything else would have been speculative. Accordingly, the city allocated approximately half of its certified LGA into its general fund (police, fire, street lighting and administration) and distributed the balance of certified dollars across other areas including the Park and Recreation Fund, Library Fund, Permanent Improvement Fund (capital expenses) and others.

Worthington: When planning its 2011 budget, the City of Worthington budgeted off of the certified 2011 LGA amount, but built in some “shock absorbers” should the city receive less than certified. These “shock absorbers” included a reduction in their street overlay program and holding open planner and patrol positions. However, the city’s planning efforts would not have covered the cuts in H.F. 130 had the bill been signed by the governor. In this case, the city would have been forced to further dip into reserves to cover the shortfall.

Rochester: The City of Rochester budgeted for 2011 based on its actual paid 2010 LGA amount, but did not include in that lower amount the reduction in Market Value Credit that would be paid to the city had H.F. 130 become law. In that case, the City of Rochester would have been short on their budget by approximately $1.8 million, which would have been accounted for in cuts to other budget areas.

What the experience of these cities reveals is that when assembling their 2011 budgets, there was no consensus as to what cities expected or how they planned. When they did plan for a reduced amount of funding, they took steps that had the effect of reducing services or raising taxes and fees. This exercise shows that whether cities planned for the cuts from their certified LGA or not, the specter of reductions either forced cities to raise taxes or reduce services, or will force cities to reduce services, raise taxes and further raid reserves if 2011 certified amounts are not paid.