Spending Grew Fast But Still Lags Others

March 10, 2011

Arizona’s spending has beefed up considerably over the past 20 years or so. 

The time period of 1985 to 2008 provides a useful gauge.  The state’s population doubled.  So, almost exactly, did the cost of living.  By simple multiplication, one could readily anticipate that state government would need to grow by four times simply to keep up.

Instead, state spending increased a whopping seven times. 

It’s a ratio that varies slightly depending on the data used.  This calculation is based on figures provided by the U.S. Census Bureau.  They show Arizona making direct expenditures of $20.5 billion in 2008, in contrast to the $2.8 billion spent in 1985.  The increase, according to Thinking Arizona’s analysis, was the second fastest rate in the country.   Only Florida’s spending growth of 7.5x exceeded Arizona’s 7.3x. 

It easily could be argued that the two states were playing catch-up.  Judged by the standard of the past, expenditures by Arizona have gotten very big indeed.  Judged by the standard of how its spending compares relative to others, the needle has barely moved.  Just as a growing Aaron continued to lag his peers, so too has Arizona.   The state ranked 45th in the country in per capita spending in 1985.  Despite the huge spending increases over the years, its ranking relative to other states in 2008 was still 45th.  Florida was even lower at 48th.

That’s because other states were spending gobs of money, too.  State spending across the country increased from 1985 to 2008 by 4.7 times.  That raised average per capita spending to $4,133.  Arizona’s per capita expenditures of $3,445 were lowly by comparison.  See the comparative rankings then and now.[1]

That Arizona’s expenditures would be among the lowest isn’t surprising.  The expenditure ranking virtually matches the state’s revenue ranking.  As reported in Edition 3 of Thinking Arizona[2], the state sits 44th in the country in revenue per capita. 

The spending comparisons are based on an analysis of the annual reports compiled by the Census Bureau on state and local spending.  The figures are significantly different from state budget figures because of differences in methodology but the Census Bureau methodology is constant across states and over time, thereby facilitating intrastate comparisons.

The Census Bureau report encompasses spending that is derived from all revenue sources, including federal funds and all fees such as college tuition. 

It also includes expenditures made for capital improvements.  The analysis presented here focuses entirely on direct expenditures, so the state figures do not include intergovernmental transfers such as the funding for elementary and secondary education that the state contributes to school districts.  Those amounts, however, are included in local spending.

The direct spending by local jurisdictions – counties, cities, schools and special districts – is huge in its own right.  The total local spend of just under $32 billion ranks, on a per capita basis, the 11th highest in the country.  (The local amount is pumped up by $5.8 billion in spending on government-connected utilities, which are largely offset by corresponding revenues.)

Putting together all state and local spending sums to a rather staggering $52.5 billion, which includes federal funding of $9.7 billion.  The per capita total of $8,556, according to the calculations of Thinking Arizona, puts the state 29th nationally.  See analysis of how the money is spent.[3]

Arizona does not have as much capacity as some other states to bear those costs. When the combined governmental expenditures are expressed as a percentage of each state’s personal income, Arizona rises to 14th in the country.  Its rate of 24.8 percent compares with the national figure of 22.9 percent. 

Some complain the Census Bureau is dated.  Indeed, a lot has changed in the short time since 2008.

By comparison, the up-to-the-moment budget reports of Arizona’s Joint Legislative Budget Committee focus more directly and narrowly on the appropriation of the state’s own money.  The general fund and other state funds combined to make up a 2008 appropriations of $13.6 billion.  That’s an increase of 5.7x from the 1985 amount of $2.4 billion.

In the wake of the economic downturn, states across the land have been engaged in a mad – in this case that frequently translates to angry and bitter — scramble to reduce spending.  They are reported to have cut $75 billion from their budgets in the last two years.  Even so, the word emanating from the National Governors Association winter meeting was that they still need to make up a further gap of $175 billion over the next two years.  Arizona’s brethren will be getting a little smaller.

But of course, so is Arizona.  The state’s total appropriations dropped from their high of $14.0 billion in 2007 to $12.8 billion for the current fiscal year.  Even so, lawmakers are faced with making up for a revenue shortfall ranging from $530 million to perhaps twice that amount for this year, and another $975 million to $1.4 billion for next year.

State Spending Limit

At every step along the way, state officials have to adhere to a constitutional requirement that expenditures be kept below a specified percentage of overall personal income in the state.  The ceiling was 7 percent of personal income when the measure was first approved by voters in 1980, but over the years has been increased to 7.41 percent to accommodate new obligations.

The biggest new obligation is the creation and then expansion of the Arizona Health Care Cost Containment System, known elsewhere as Medicaid.  In 1985, the program’s third year in Arizona, it cost $125 million.  In 2008, it cost $1.5 billion.  That’s a 12-fold increase.

The constitutional requirement adds still another perspective in evaluating how big the budget has become. While the amendment is intended as a curb on excess, its underlying premise is to allow spending to grow at a pace proportionate to the state’s economy.

The proxy for the state’s economy is overall personal income, a figure that jumped from $37 billion in 1985 to $217 billion in 2008.  The six-fold increase far outstrips the four-fold increase in the combination of population growth and higher cost of living.

The growth in personal income has provided enough of a cushion for the state to make rather robust increases in spending and still not come close to exceeding the spending limit.  The closest brush came in 2007 when expenditures got up to 6.91 percent of personal income.

Since then the figure has dropped more than a full percentage point, thanks to spending cuts being made while personal income levels have held rather steady other than taking a small dip in 2010.  The Legislature is presently considering a bill to reduce the cap to 6.4 percent.

How is one to think about all this? 


The answer comes down to one’s perspective.  Arizona’s budget is much bigger than it was, but still is much smaller than almost all others.  Where one chooses to place the emphasis, on the first or second phrase of the previous sentence, is largely determined by what one wants the state to be.

– Richard Gilman

  1. See the comparative rankings then and now.: http://www.thinkingarizona.com/thinking_sidebar/state-spends-less-then-and-now/
  2. Edition 3 of Thinking Arizona: http://www.thinkingarizona.com/thinking_edition/arizona_state_revenue_comparison/
  3. See analysis of how the money is spent.: http://www.thinkingarizona.com/thinking_sidebar/biggest-expenses/
  4. Read the opposing views of two experts.: http://www.thinkingarizona.com/thinking_sidebar/states-spending-approaches/
  5. [Image]: http://www.thinkingarizona.com/wp-content/uploads/2011/03/Ed-4-spending-growth.jpg

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