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Friday, January 3, 2020

Still Think We Don't Have A Spending Problem?

If you still think we don't have a spending problem in Wyoming, I have some numbers for you.

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In 2010, the state and our local governments spent a total of $8.7 billion. This was equal to 27.1 percent of total private-sector GDP. In other words: government spent an equal of 27 cents, and then some, of every dollar of economic value that the private sector produced. 

This share fluctuated a bit through the next couple of years, mostly due to growth in private economic activity: in 2011 the ratio was 25.4 percent; in 2012-2014 it was 26.5-26.6 percent.

Then the downturn in minerals happens. Since government keeps spending no matter how poorly taxpayers do, the spending-to-private-GDP ratio increased to 30.3 percent in 2016. 

In 2017 (the latest year for which we have comprehensive data) state and local government spending in Wyoming reached 34 percent of private-sector GDP.

What does this mean in practice? While families and businesses were struggling to make ends meet; while the private sector lost more than 17,000 jobs in two years; government continued to pump money into its departments and agencies at the same pace as when times were better. 

From 2010 to 2017 non-federal government spending in our state increased by 17.3 percent. During the same period of time, the private sector economic activity from which our government gets its revenue (taxes, fees and other charges) shrank by 2.9 percent in current prices. 

For comparison, in 2010 average spending by states and local governments in the United States amounted to 24.2 percent of private-sector GDP. In 2017 that share had declined to 21.2 percent.

In other words, the country as a whole drifted in the opposite direction of Wyoming. 

But we don't have a spending problem, do we?

Since 2015 we have had the third or fourth highest spending ratio of all states. In 2017, Alaska, New Mexico and Mississippi surpassed us in spending, but we were way ahead of other rural states like North Dakota (23.3 percent), Idaho (20.9) and South Dakota (18.5). 

Here is the full list for 2017:

Table 1
Sources of raw data: Census Bureau (spending), Bureau of Economic Analysis (GDP)

2017
Alaska 36.2%
New Mexico 34.5%
Mississippi 33.1%
Wyoming 32.7%
West Virginia 29.6%
Vermont 29.5%
Alabama 27.8%
Oregon 27.1%
Montana 27.0%
South Carolina 26.8%
Kentucky 26.6%
Arkansas 26.2%
Rhode Island 24.6%
New York 24.2%
Maine 24.0%
Hawaii 23.5%
North Dakota 23.3%
Louisiana 23.1%
California 22.8%
Ohio 22.6%
Pennsylvania 22.5%
Maryland 22.2%
Iowa 22.1%
Nebraska 22.0%
Oklahoma 21.9%
Kansas 21.8%
Michigan 21.8%
Wisconsin 21.7%
Minnesota 21.7%
U.S. 21.5%
Arizona 21.1%
Idaho 20.9%
Utah 20.7%
New Jersey 20.6%
Missouri 20.5%
Virginia 20.3%
Florida 20.2%
Washington 20.1%
Colorado 19.7%
Illinois 19.7%
Tennessee 19.4%
North Carolina 19.3%
Massachusetts 19.1%
Delaware 19.0%
South Dakota 18.5%
Indiana 18.5%
Nevada 18.5%
Texas 17.9%
New Hampshire 17.4%
Georgia 17.0%
Connecticut 17.0%

Our spending problem is not helped by the fact that we have the highest Government Employment Ratio in the country, which gives us a hint of one of the reasons for our excessively high spending level. A solution to our endless government budget problems will have to start there.

One place we can not find the solution is the revenue side. We already take far more from the private sector than what is healthy and sound for our state's long-term prosperity. The same ratio as with spending looks like this when applied to revenue:

Table 2
Sources of raw dataCensus Bureau (spending), Bureau of Economic Analysis (GDP)

2017
New Mexico 37.0%
Mississippi 35.8%
Alaska 34.6%
West Virginia 33.0%
Wyoming 31.2%
Vermont 29.9%
Oregon 29.4%
Arkansas 29.3%
Montana 29.3%
Alabama 28.6%
Hawaii 28.4%
South Carolina 27.7%
Maine 27.0%
New York 26.6%
Kentucky 25.7%
Rhode Island 25.3%
California 25.0%
Idaho 24.9%
Louisiana 24.8%
Ohio 24.6%
Iowa 24.4%
Michigan 24.3%
Oklahoma 23.8%
North Dakota 23.4%
Nebraska 23.3%
Minnesota 23.3%
Maryland 23.2%
Arizona 23.1%
U.S. 23.1%
Kansas 23.0%
Missouri 22.9%
Nevada 22.7%
Wisconsin 22.7%
Utah 22.4%
Pennsylvania 22.3%
Virginia 22.1%
North Carolina 22.0%
Washington 22.0%
Florida 22.0%
New Jersey 21.9%
South Dakota 20.9%
Connecticut 20.6%
Tennessee 20.5%
Colorado 20.1%
Illinois 20.0%
Indiana 20.0%
Massachusetts 19.6%
New Hampshire 19.4%
Texas 18.7%
Delaware 18.6%
Georgia 18.3%

Please note that the U.S. average is 23.1 percent. If we had kept our state and local governments to the same revenue share as the rest of the country, in 2017 Wyoming families and businesses would have been able to keep $2.5 billion more of their own money.

That equals just over $4,432 per Wyoming resident. This is money that would have stayed in the pockets of every business in our state, from minerals and Wal-Mart to your local plumber and landscaper. It would have meant much more money in family pocketbooks, so much that it would have allowed thousands of people to stay in our state instead of leaving it. 

Suppose it costs $60,000 to create an average private-sector job. The number is a bit lower, but let us use this number just for illustration. With $2.5 billion more remaining in the private sector, there would have been enough extra business activity to create more than 42,000 new jobs.

Non-federal government workers make on average 73 percent more - including benefits - than private-sector employees in our state. Let us assume that we cut government spending proportionate to the drop in revenue, and that this cut leads to a proportionate decline in the government workforce. To keep this calculation modest, in other words biased in favor of big government, we assume that a government job only costs twice as much as the $60,000 in the private sector. In other words, a spending cut equal to $2.5 billion would have removed 21,000 government jobs, leading to a net increase of 21,000 in total employment.

And this is just initially. The multiplier and accelerator effects from a $2.5-billion spending boost in our state are simply formidable. 

It will take some intelligent reforms to government spending to achieve this reduction. I have a list of reforms that, if done right, could easily bring us down to that level. We can do it. It is going to take a lot of work on behalf of our lawmakers, and strong commitment from voters and taxpayers, but Wyoming was not built by those who took the easy way out.

2 comments:

  1. Excellent. May i cordially invite you to join "Patriots of Sheridan Wyoming" FB group. Then feel free to post there to. How do i get your page or a pin?

    ReplyDelete
  2. Great post. This passage says it all: While families and businesses were struggling to make ends meet; while the private sector lost more than 17,000 jobs in two years; government continued to pump money into its departments and agencies at the same pace as when times were better

    ReplyDelete

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