State Spending Rises, Local Spending Falls During Recent Recession
New Census Figures Point to Federal Stimulus, State Tax Hikes, Medicaid as Reasons
Wisconsin state and local governments fared very differently during the recent recession, according to just-released Census information analyzed by the Wisconsin Taxpayers Alliance (WISTAX). Despite the protracted recession and slow recovery, state expenditures climbed a surprising 7.2% in 2010, while local spending fell 0.7%. This came on the heels of a similar pattern in 2009 when spending rose 11.4% at the state level but only 1.0% locally.
A major factor in the unusual divergence in state and local spending trends, according to WISTAX, a nonpartisan research organization, was a large but short-lived surge in federal monies, primarily stimulus dollars. From 2008 to 2010, federal dollars flowing into Wisconsin coffers increased 46.4%, a surprising jump considering taxes collected by state and local governments here rose only 0.8%.
A second factor was state legislative action. State-imposed limits on schools, counties, and municipalities restricted their revenue growth. Meanwhile, state government added to its revenue by increasing taxes on businesses, high-income earners, and smokers in 2009. State corporate income taxes that had ranked 23rd highest among the 50 states in 2009 vaulted to 11th in 2010. Tobacco taxes moved from 24th in 2007 to seventh in 2009 and to third in 2010. That said, Wisconsin’s overall state-local tax rank remained ninth, due to tax increases and falling incomes in other states, as well.
Growth in “public welfare” expenditures, primarily Medicaid funded in part by federal stimulus aid, is also key to understanding state-local spending during the downturn. State public welfare spending increased 23.7% in 2009 and another 10.7% in 2010. Likewise, state highway expenditures grew in both years (18.3%, then 8.2%). Local government spending in the welfare and highway categories declined in both 2009 and 2010.
Taken as a whole, these spending statistics suggest a slow shift in spending authority from local to state government in Wisconsin. In 2000, the state accounted for only 40% of all state-local expenditures; by 2010, that figure had increased to 46.5%.
The latest Census information also allows comparison of overall state-local spending (relative to state personal income) in Wisconsin and other states. State-local expenditures here claimed 22.0% of personal income in 2010, the highest percentage since at least 1993 (21.6%). Nationally, the comparable figure was 21.4%. Based on these percentages, Badger State spending relative to income was 23rd highest among the states, down slightly from 21st in 2009. Among surrounding states, Illinois ranked 38th (state-local spending equaled 19.8% of income); Iowa, 17th (22.8%); Michigan, 20th (22.5%); and Minnesota, 24th (21.5%).
The latest Focus newsletters from WISTAX, “New fed finance figures (I): Tax-hike fallout” and “New fed finance figures (II): Spending up,” provide greater detail on tax and spending trends through 2010. They are available at www.wistax.org or by emailing firstname.lastname@example.org; calling 608.241.9789; or writing WISTAX at 401 North Lawn Ave., Madison, WI 53704-5033.