Wednesday, March 26, 2014

The Illinois Budget and How Does Illinois Spending on Public Services Compare to Other States? (from the Center for Tax and Budget Accountability)


Ralph Martire, CTBA Executive Director, will join Carol Marin on WTTW Channel 11's "Chicago Tonight" this evening at 7:00 p.m. to discuss Gov. Pat Quinn's Budget Address. (If you cannot watch the show directly, WTTW often posts it later at http://chicagotonight.wttw.com/)
 
Recent projections show that the State of Illinois will run a deficit ranging from $7.59 to $7.96 billion in Fiscal Year (FY) 2014.1 This is, however, nothing new. According to the Comptroller’s Office, the state has run a deficit in its General Fund every year since at least FY1991.2 This creates genuine cause for concern, since over $9 out of every $10 spent through the General Fund goes to four core service areas: education (35 percent), healthcare (29 percent), human services (20 percent), and public safety (6 percent).

Given that the state’s General Fund deficits have been sustained over such a long period of time, many believe that spending on those core services in Illinois must be exceedingly high, and hence a major reason why the state experiences recurring budget shortfalls. The data on spending, however, paint a very different picture. When considered over the long-term, it is clear that General Fund spending on services in Illinois is actually declining in real terms after adjusting for inflation… Real, inflation-adjusted dollars, overall General Fund spending on services will be significantly less in FY2014 than it was in FY2000, irrespective of the inflation metric used.

Reducing spending in real terms over time could be an appropriate path to follow if service spending in the state was exceptionally high or overly generous compared to service spending in other states. However, under any objective evaluation, Illinois ranks near the bottom nationally in its spending on core services, which means that reducing investments in real terms over time is not an appropriate way to deal with the state’s deficits.

There are three ways to compare Illinois’ General Fund (GF) spending on services to other states: (i) per capita; (ii) as share of state Gross Domestic Product (GDP); and (iii) number of state employees per 1,000 residents. Under each metric, Illinois ranks as one of the lowest spending states in the nation. 

Consider that in 2012, Illinois’ state GDP was approximately $695 billion, which placed Illinois fifth in the nation, as shown in Figure 2.3 

Figure 2: 2012 GDP and Rank of Top 10 Wealthiest States ($ Billions)
State
2012 GDP
Rank out of 50
California
$2,003
1
Texas
$1,397
2
New York
$1,206
3
Florida
$777
4
Illinois
$695
5
Pennsylvania
$601
6
Ohio
$509
7
New Jersey
$508
8
North Carolina
$456
9
Virginia
$446
10
Source: US Bureau of Economic Analysis. “2012 State GDP.” Last modified June 6, 2013. http://www.bea.gov/.
As shown in Figure 3, Illinois’ $695 billion in state GDP was the greatest in the entire Midwest region in 2012. 

Figure 3: 2012 GDP and Rank of Midwest States ($ Billions)
State
2012 GDP
Rank out of 50
Illinois
$695
5
Ohio
$509
7
Michigan
$401
13
Indiana
$299
16
Minnesota
$295
17
Wisconsin
$262
21
Missouri
$259
22
Iowa
$152
30
Source: US Bureau of Economic Analysis. “2012 State GDP.” Last modified June 6, 2013. http://www.bea.gov/.

However, because population varies significantly from state-to-state—for instance, Illinois’ population of 12.9 million in 2012 is four times larger than Iowa’s (3.1 million)—a better metric for comparing the respective wealth of the states is GDP per capita. Gross Domestic Product per capita is calculated by dividing total state GDP by population. As shown in Figure 4, Illinois’ GDP per capita is almost $54,000.

 Figure 4: 2012 GDP per Capita and Rank of Midwest States
State
Total GDP ($ Billions)
GDP per Capita
Rank out of 50
Minnesota
$295
$54,791.11
9
Illinois
$695
$53,998.00
12
Iowa
$152
$49,585.81
22
Indiana
$299
$45,679.94
30
Wisconsin
$262
$45,674.09
31
Ohio
$509
$44,125.35
32
Missouri
$259
$42,981.16
35
Michigan
$401
$40,523.06
39
Sources: CTBA analysis using (i) 2012 population from US Census Bureau. “Annual Estimates of the Resident Population: April 1, 2010 to July 1, 2012: July 2012 totals.” Last updated December 2012. http://factfinder2.census.gov/faces/nav/jsf/pages/index.xhtml; and (ii) US Bureau of Economic Analysis. ”2012 State GDP.” Last modified June 6, 2013. http://www.bea.gov/.

Hence, when population is taken into account, Illinois had the second highest GDP per capita in the Midwest region, trailing only Minnesota. Nationally, Illinois ranked 12th overall.4 Thus, even after adjusting for population, Illinois remains one of the wealthier states in the country, with a GDP per capita greater than 38 other states. 

Yet, despite its relatively large economy, Illinois’ GF expenditures on services were well below other states for FY2012, the latest year available for a comprehensive national comparison. Since Illinois cut its GF spending on services in FY2013 by $377 million from FY2012 levels, and is again cutting service expenditures in the enacted FY2014 budget by some $173 million from FY2013 levels, there is little reason to believe the state’s national ranking on GF spending has changed significantly since 2012.5
General Expenditures Comparison Across All 50 States6
General Fund expenditures compared in this analysis focus on each states’ respective net spending on core services (i.e. education, healthcare, human services, and public safety), which collectively constitute the vast majority—90 percent plus—of all service spending done by all states.
Again, because states vary widely in population, a simple comparison of aggregate spending levels—whether by service category or overall—is meaningless. A far more telling comparison adjusts for population, and, hence uses GF expenditures per capita. In FY2012, Illinois spent $1,947.46 per resident on core services through its GF. 

Illinois’ spending per capita ranked 28th among all 50 states, well below its rank in both overall population of fifth and GDP per capita of 12th. Moreover, despite having the largest population and second highest GDP per capita in the Midwest, Illinois ranked second lowest amongst the Midwest states in GF spending on services, as shown in Figure 5.
Figure 5: FY2012 General Fund Expenditures and Rank amongst Midwest States
State
Total GF Spending
($ Billions)
GF per Capita
Rank out of 50
Minnesota
$16.6
$3,088.0
9
Wisconsin
$13.7
$2,397.2
15
Ohio
$26.9
$2,329.5
16
Michigan
$22.1
$2,233.7
19
Indiana
$13.0
$1,986.3
25
Iowa
$6.0
$1,955.8
27
Illinois
$25.1
$1,947.5
28
Missouri
$7.9
$1,312.9
46
Sources: CTBA analysis using (i) 2012 population from US Census Bureau. “Annual Estimates of the Resident Population: April 1, 2010 to July 1, 2012: July 2012 totals.” Last updated December 2012. http://factfinder2.census.gov/faces/nav/jsf/pages/index.xhtml; (ii) National Association of State Budget Officers, Fall 2012: Fiscal Survey of the States (Washington, DC: 2012), 4; and (iii) state budgets.

Figure 6 compares FY2012 General Fund expenditures per capita for the 10 states that had the highest GDPs in 2012.
Figure 6: FY2012 General Fund Expenditures and Rank amongst Wealthiest States
State
Total GF Spending
($ Billions)
GF per Capita
Rank out of 50
State GDP
($ Billions)
New Jersey
$30.5
$3,443.0
7
$508
New York
$53.3
$2,722.3
12
$1,206
Ohio
$26.9
$2,329.5
16
$509
California
$85.9
$2,259.0
18
$2,003
Pennsylvania
$26.1
$2,046.4
23
$601
Virginia
$16.3
$1,994.3
24
$446
Illinois
$25.1
$1,947.5
28
$695
North Carolina
$18.6
$1,908.0
29
$456
Texas
$43.9
$1,683.8
36
$1,397
Florida
$24.5
$1,270.5
48
$777
Sources: CTBA analysis using (i) 2012 population from US Census Bureau. “Annual Estimates of the Resident Population: April 1, 2010 to July 1, 2012: July 2012 totals.” Last updated December 2012. http://factfinder2.census.gov/faces/nav/jsf/pages/index.xhtml; (ii) National Association of State Budget Officers, Fall 2012: Fiscal Survey of the States (Washington, DC: 2012), 4; (iii) state budgets; and (iv) US Bureau of Economic Analysis. “2012 State GDP.” Last modified June 6, 2013. http://www.bea.gov/.
The state with the highest GF expenditures on services per capita in 2012 was Alaska ($6,920.8), while Nevada ($1,075.1) ranked 50th. The national median expenditure per capita in 2012 was $1,974.5. To rank median in GF expenditures per capita, Illinois would have had to have spent nearly $350 million more in FY2012 on core services than it did. Increasing Illinois’ rank in per capita spending is unlikely to occur in the near future, given the FY2013 and FY2014 budget cuts. Indeed, Illinois’ FY2012 spending on services was over $400 million less in nominal dollars, meaning without adjusting for inflation, than in FY2011.7
Examining GF expenditures on services as share of GDP is another way to compare Illinois to other states. In a meaningful way, it is actually one of the better metrics to use because it takes into account a state’s wealth—and hence, ability to fund core services. Using this metric, Illinois ranks 36th in spending on services nationwide. This means that despite having a high GDP, Illinois is in the bottom third for investing in core services. As shown in Figures 7 and 8, Illinois’ GF expenditures as share of GDP lags behind most other Midwest and wealthy states.
Figure 7: FY2012 GF Expenditures as Share of GDP amongst Midwest States
State
GF Expenditures as Share of GDP
Rank out of 50
Minnesota
5.64%
11
Michigan
5.51%
12
Ohio
5.28%
15
Wisconsin
5.25%
16
Indiana
4.35%
23
Iowa
3.94%
33
Illinois
3.61%
36
Missouri
3.05%
46
Sources: CTBA analysis using (i) National Association of State Budget Officers, Fall 2012:
Fiscal Survey of the State (Washington, DC: 2012), 4; (ii) state budgets; and (iii) US Bureau of Economic Analysis. “2012 State GDP.” Last modified June 6, 2013. http://www.bea.gov/.

 

No comments:

Post a Comment