Why does the State of Idaho’s budget grow so fast? Last year the FY 2007 General Fund original appropriation was $2.3 billion, which was a 7.4% increase over the previous fiscal year. The recently approved General Fund budget for next fiscal year (FY 2008), which begins this July 1, is $2.8 billion. This is an increase of $477 million or 20.4% over the current year. How can one of the most conservative legislatures in the country increase spending this much?

The short answer is they do it because that’s what the electorate wants them to do. If legislators didn’t respond to the citizens needs they would be voted out of office. But, as you might expect, in reality the state budget is a little more complicated than just looking at the total spending figure. The primary reason for next year’s 20.4% General Fund increase is last year’s decision to raise the state sales tax from 5% to 6% and use most of the revenue generated by that act to reduce public school district property tax levies. This one action, which increased the Public Schools’ FY 2007 General Fund appropriation by $250.6 million, is responsible for over half of the growth in the state’s FY 2008 General Fund budget. Adjusting the FY 2007 original General Fund appropriation to include the $250.6 million that was provided during the August 2006 Special Session reduces the FY 2008 General Fund budget growth rate to 8.8%.

This is still a significant increase, however. You might ask how next year’s increase compares to previous fiscal years. The table below reflects the original General Fund appropriation from FY 1978 through FY 2008. Over the last thirty years the average annual growth rate was 8.2%. It has fluctuated between a low of a negative 3.7% in FY 2003 to a high of 23.6% in FY 1985. The FY 2003 reduction was the result of an economic downturn immediately after the passage of significant tax relief. The FY 1985 increase was partly due to the replacement of $40.4 million in Public School property taxes with General Funds. The growth rate that year was 14.6% exclusive of the property tax replacement decision.

An 8.2% average annual increase in state General Fund appropriations may appear high. This number needs to be put in context, however. If General Funds are used to replace local property tax for schools, for example, then the total tax burden hasn’t increased. The table reflects that this has happened four times during the last 30 years. If we adjust the percentage growth rates for each of these years, the average annual change for the 30 year period drops from 8.2% to 7.1%.

Two other generally accepted adjustments that are typically made to time series based expenditures are to factor in the impacts of inflation and population. Rather than adjusting the original appropriation numbers that are in the above table, however, I would like to use actual expenditure data. Actual expenditures tend to be a better indicator than original appropriations because they reflect all activities that occur during a fiscal year. They include supplemental appropriations, holdbacks, reversions, and all other expenditure adjustments. Actual expenditures provide a more complete picture of what really takes place.

The table reflects actual General Fund expenditures for the FY 1977 through FY 2007 period. Since FY 2007 is not yet complete it reflects an estimate based on Legislative action during the session that just adjourned March 30. It is interesting to note that the average annual percent change in unadjusted “current dollar” expenditures grew at the same 8.2% that original appropriations grew over the last 30 years.

Although this table doesn’t display the annual percentage changes for each year, the differences for individual years can be dramatic. For example in FY 1984 actual expenditures were 16.3% higher than FY 1983. The FY 1984 original appropriation was 2.8% less than FY 1983. This difference was due to two factors. In FY 1983 actual expenditures were $48.6 less than the original appropriation because of a holdback. Second, FY 1984 actual expenditures were $32.3 million higher than the original appropriation due to supplementals. The 30 year range in actual expenditure growth rates fluctuates from a low of a negative 2.7% (FY 2003) to a high of 16.4% (FY 1991).

This table also provides data for the Consumer Price Index (CPI) and Idaho’s population. Over the 30 year period, inflation as measured by the CPI grew an average of 4.3% per year and the state’s population grew 1.8% annually.

The third column in the table reflects the state’s General Fund expenditures in current dollars per Idaho resident. Note that expenditures per resident grew an average of 6.3% per year. This is prior to adjusting for inflation. The sixth column adds inflation to the equation. It reflects expenditures in FY 2007 dollars per resident. Over the thirty year period it reflects that adjusted for inflation state General Fund expenditures per resident grew 2.0% per year.

Is a 2.0% adjusted growth rate acceptable or not? Some people feel it’s too high and some feel it’s too low. Then there are those middle of the roader’s who say it’s about right. Which brings me back to the point I made at the beginning: we tend to get what we vote for. Elected officials do their best to serve the needs of the public. Unlike the federal government, state governments must balance their budgets each year. That’s why state expenditures tend to grow at the same rate as revenue. If you are not happy with that then it’s your responsibility to let your representatives know.