Budget & Tax

Government Spending in Oklahoma: A Runaway Train

September 1, 2009

J. Scott Moody, Wendy Warcholik, Ph.D.

When it comes to government spending in Oklahoma, the 800-pound gorilla in the room that everyone ignores is the simple question, Should government grow faster than people's ability to pay?

To answer that question, a little history needs to be explored. Have Oklahoma's state and local governments been growing at a rate beyond the people's ability to pay?

Chart 1 and Table 1 illustrate the growth differentials between state and local government (S&L) expenditures and two different benchmarks. The data are for fiscal years (FY) 1960 to 2006 (the latest year of data available from the U.S. Census Bureau).*

The first benchmark is population growth plus inflation. As you can see, when S&L expenditures are compared to population growth and inflation, there is no contest. The growth in government expenditures rapidly pulls away on day one and never looks back.

The second benchmark is Oklahomans' personal income. Between FY 1960 and FY 1984, the rate of growth between S&L expenditures and personal income were virtually identical, with ending index values of 10.09 and 9.21, respectively.

However, after 1984 the situation is very different. The growth in S&L expenditures begins to pull away from the growth in Oklahomans' personal income. Between FY 1985 and FY 2000, the gap between the growth in S&L expenditures and personal income expanded and then reached a plateau, with neither able to grow significantly faster than the other (with the exception of the early 1990s, which saw a small widening of the growth gap).

Unfortunately, this tentative equilibrium was shattered after 2000 with two successive years of double-digit growth in S&L expenditures. In FY 2001, S&L expenditures soared by a whopping 15 percent to $18,368,794,000 from $15,961,566,000. This was followed in FY 2002 by another dramatic 13.1 percent jump to $20,776,022,000. In contrast, personal income grew at 7.8 percent and 3.4 percent, respectively.

By FY 2002, the gap between the growth indices had reached an all-time high of 37.9 percent with an index value of 28.41 for S&L expenditures and an index value of 20.6 for personal income. Fortunately, in the years since FY 2002 personal income growth has exceeded the growth in S&L expenditures, bringing the gap down 28.3 percent (which is still significantly above the historical average).

Whichever benchmark one uses-population plus inflation or personal income-the conclusion is the same. Oklahoma's state and local government expenditures have become a runaway train, outstripping taxpayers' ability to pay.

So how do we slow the growth in government?

One way is to put speed limits on spending. This means government spending can only grow at a predetermined rate. Based on this analysis, that speed limit would have to be (at a minimum) below the rate of growth in personal income. And a more stringent speed limit, such as population plus inflation, may in fact be in order.

*The comparative growth indices shown in Chart 1 and Table 1 were created by setting the base year (1960) equal to one and then multiplying each successive year by the growth rate. This makes it easier to visualize the relative growth differentials without worrying about the differences in starting values. State and local expenditures combined-rather than just state expenditures-were examined because responsibilities between the state government and local governments can change over time.

Economists J. Scott Moody (M.A., George Mason University) and Wendy P. Warcholik (Ph.D., George Mason University) are OCPA research fellows.