Ignoring population growth distorts history of state spending

The charts below show two ways of looking at the history of state spending.

The first is from the Dunleavy administration. It includes an adjustment for inflation, but it does not include an adjustment for population growth over the decades, a serious omission.

The second chart is from the Legislative Finance Division. It includes adjustments for inflation and for population growth, both of which are essential. The chart was included in a presentation by David Teal, the director of legislative finance, in a budget hearing Jan. 23.

The governor’s office submitted the first chart as part of its sales pitch on the proposed state spending limit this week, House Joint Resolution 7. Excluding population distorts reality and inflates the trajectory of spending, making it easier to claim state spending is out of control and that we need this amendment.

According to the 1980 census, Alaska had 401,851 residents in 1980. The 2018 population estimate is 736,239. It costs more to run a state government with more residents.

No chart that claims to show the real history of state spending over the past 40 years is accurate unless it accounts for the increased costs from the addition of more than 300,000 new residents.

The second chart, the one presented by Teal, does not make a dramatic case for a spending limit, as it shows that state spending on operations, adjusted for inflation and population, is similar to what it was in the late 1970s, before the oil boom.

“You have to adjust for inflation. You also have to adjust for a growing population because the state provides services now to twice as many people as we did in the 70s,” Teal said during the January hearing, part of an overview of the state budget. “That’s what real per capita means, it’s adjusted for both population and inflation.”

During the hearing Thursday on the state spending limit, Rep. Jonathan Kreiss-Tomkins asked Dunleavy administration economist Ed King why there was zero allowance for population growth in the first chart below, which is Slide 3 part of this presentation.

“When we talk about spending, just as economists, we usually talk about the purchasing power of a dollar and we usually talk about is what the inflation-adjusted value of that dollars are. What this is trying to show you is if you had that same level of government services, what it would have costed in today’s dollars. It’s not suggesting what the right level of government service is, it’s just simply telling you what the amount of money in today’s dollars, the government did spend. To put population in here would be mixing apples and oranges a little bit. It’s definitely something that we could do and it does provide some insight and value. But it’s not necessarily instructive on what government spending should be or necessarily what it was,” said King.

There is a relationship between population growth and spending. That the Dunleavy administration uses bafflegab to claim otherwise is instructive. This is one of numerous problems with Dunleavy’s proposed constitutional amendment.

(If you want to contribute financially to this reporting and analysis project, you can do so here through PayPal. Or simply mail checks to: Dermot Cole, Box 10673, Fairbanks, AK 99710-0673. Thank you.)

Screen Shot 2019-05-03 at 11.11.48 AM.png
Screen Shot 2019-05-03 at 11.11.26 AM.png