Volatile States: Institutions, Policy, and the Performance of American State Economies

9. Political Ideology and Other Drivers of State Budget Priorities

Chapter 9 Political Ideology and Other Drivers of State Budget Priorities State government budgets consist of four major spending categories: education; public welfare, health, and hospitals; highways; and police protection and corrections.1 Combined, these four broad categories account for more than 70 percent of all state government spending. At the end of the twentieth century, for every budgetary dollar spent in the typical (median) state, 33¢ went for education; 27¢ went for public welfare, health, and hospitals; 8¢ went for highways; and 4¢ went for police protection and corrections. Naturally, these expenditure allocations mirror the key responsibilities and functions of American state governments. For emphasis, Agure 9.1 illustrates the budgetary pie sliced into these four components for the typical state government in 1998. In the Anal three decades of the twentieth century the relative importance of these four components shifted, and for two components the budget reallocation was striking. Figure 9.2 illustrates the budget slices in the typical state in 1969. Most noteworthy, over this 30-year period the share of the budget allocated to highway programs dropped 11 percentage points. The drop in highway spending was almost exactly offset by a 10 percentage point rise in spending for public welfare, health, and hospitals. In 30 years, state highway expenditures dropped from the second largest budget item (19 percent in 1969) to a distant third, amounting to just 8 percent of the typical state budget in 1998. At the same time, spending for public welfare, health, and hospitals rose from third place (17 percent in 1969) to a strong second place, amounting to 27 percent of the typical state budget in 1998. The reallocation from highways to public welfare and healthrelated programs represents by far the most conspicuous transformation in state budgetary priorities in the late twentieth century. Education spending remained the largest budget component throughout this three-decade period, but its share of the budget dropped 4 percentage points in the typical state, from 37 percent to 119 Highways 8% Police & Corrections 4% Education 33% Public Welfare, Health, Hospitals 27% Other 28% Fig. 9.1. Major components of state budgets in 1998 (values for the median state) Highways 19% Police & Corrections 2% Education 37% Public Welfare, Health, Hospitals 17% Other 25% Fig. 9.2. Major components of state budgets in 1969 (values for the median state) 33 percent. Police protection and corrections spending increased 2 percentage points, from 2 percent to 4 percent. The “other” category increased 3 percentage points, to 28 percent from 25 percent. This broad blueprint of the relative importance the major spending programs in the typical (median) state fails to capture the rich diversity among the states in budget priorities. For example, Utah devotes 43 percent of its state budget to funding education; in Massachusetts and New Hampshire only 20 percent of the state budget goes to education. New York devotes 39 percent of its budget to public welfare, health and hospitals; Alaska devotes 16 percent. In addition, states differ widely in how their budget priorities changed over the 30 years examined. In Florida education spending as a share of the state budget fell 20 percentage points; in Idaho education spending rose by 5 percentage points. It is interesting to note that highway funding as a share of the budget fell in all 50 states between 1969 and 1998, with the greatest decline in Wyoming (20 percentage points) and the smallest decline in Massachusetts (2 percentage points). Basic Trends in State Budget Priorities Chapter 7 documented the changes that occurred over 30 years in aggregate state spending, and Chapter 8 identiAed the main elements that account for spending differences over time and across states. In per capita terms, total spending in the median state grew from $1,696 per capita in 1969 to $3,593 in 1998 (in constant 2000 dollars). This growth amounts to an average annual growth rate of 2.6 percent. By comparison, between 1969 and 1998 personal income per capita in the median state grew at an average annual rate of 1.7 percent. Figure 9.3 shows the comparable growth rates for the four main budget components between 1969 and 1998. Real per capita spending for police protection and corrections grew at an annual rate of 5.2 percent, exactly twice the growth rate in aggregate state spending. Public welfare, health, and hospitals spending grew at an average annual clip of 4.2 percent, again...